The aim of this article is to identify patterns of profitability volatility
and to establish the degree of dynamic conditional correlation between the
stock markets of developed countries and those of Russia. This issue is
important for investment strategies and the international diversification of
investments. We use the BEKK-GARCH, CCC-GARCH, and DCCGARCH models and show
that the correlation between the Russian stock market and the markets of the
USA, UK, Germany, and France has decreased significantly in recent years. We
find that while the correlation between the Russian market and the mature
European markets is bidirectional, the relationship between the US market
and the Russian market is unidirectional. An assessment of the transfer of
volatility from all of the mature markets to the Russian market establishes
its statistical significance and shows that feedback from the Russian market
to the UK and German markets is insignificant. Diversification of
international portfolios in the Russian market is recommended.
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