INTERNATIONAL DIVERSIFICATION AND STOCK MARKETS VOLATILITIES

The current paper examines the volatility parameters of thirteen stock markets returns (mature and emerging) by GARCH models in order to see its effects on the potential gains of international diversification. Then, we identify the effects of the volatilities on the correlation between international stock markets. The empirical results show that an ARCH effect exists for all stock markets returns and that volatility is persistent and asymmetrical according to the shock nature. Moreover, the volatility spillover, which is important between the mature stock markets, is checked between the majorities of stock markets. Indeed, we observe the contagion effect which negatively affects the potential gains of international diversification. The assumption stipulating the increase of a coefficient correlation in period of high volatility, which reduces the benefit of international diversification, is confirmed for the majority of markets.