Knif, JOhan and Seppo Pynnonen (2002). Common Volatility Components in International Stock Markets. In Financial Services in Evolving Global Marketplace. Editors Esmeralda O. Lyn and George J. Papaioannou. Frank G. Zarb School of Business, Hofstra University, New York, pp 41--50.

Abstract. This paper analyzes volatility structures and the presence of common volatility components in the stock markets of Asian-Pacific, Europe and North America using close-to-close daily returns in local currencies. The return series are filtered before volatility modeling in order to remove first order autocorrelations. Furthermore, the consequences of nonsynchroneity in the opening hours of the markets around the globe are carefully taken into account. The results indicate that an ARCH-effect is present in all the markets. However, only a few pairs of markets seem to share common volatility. USA is present in most of these pairs. Of the European markets, only France and the small Nordic markets seem to share a common volatility process with USA. It seems that the small markets follow the volatility process generated in US. Furthermore, a common time-varying volatility process seems to be present in Canada and US. In addition, Hong Kong seems to share a common volatility with US. Analysis of weekly data suggests that common volatility is at most a regional feature.