Stock Markets Volatility and International Diversification

During the last decades, the financial markets volatility concept attracted the attention of the theorists and the experts in the field of finance, especially for the internationally diversified wallets. In this article, we used an asymmetric dynamic conditional correlation (DCC-GARCH (1.1)) model following the approach of Engle (2002), to test if the volatility of individual market or their relative volatility causes the changing in correlation. The study focuses on the seven developed (G7) countries over the period 01/01/2000:31/12/2008. The results indicate that there is a significant effect of individual volatilities and correlations between the US market and the other markets and that individual volatility of these markets has an impact on the increase in correlations between the G7 countries