Relations between Volatility and Returns of Exchange Traded Funds of Emerging Markets and of USA

This paper investigates linkages between equity returns and transmission and persistence of volatilities between US and selected key emerging countries during 2012. The data set consists of daily returns of exchange traded funds (ETF) of Brazil, India, Indonesia, Mexico, Russia, S. Korea, Turkey and US. The results of the analysis indicate the existence of significant co-movement of returns among all ETFs, as well as transmission and persistence of volatilities of most emerging markets, with the exception of Turkey and Russia, where the volatilities were unaffected by volatilities of other markets. Turkey¡¯s volatility was only transmitted to Indonesia. The findings also indicate that the US market volatility was only transmitted to Indonesia and not to any other market, and the only market whose volatility was transmitted to the US was that of Mexico. The presence of spillovers among stock markets¡¯ return series and persistence of volatilities is indicative of efficiency (or inefficiency) in stock markets, and therefore, is useful to investors interested in diversifying their portfolios.