Dynamic interdependence and volatility transmission in the American stock markets during the attacks of September 11: a retrospective

Abstract

This article examines the dynamic interdependence, volatility transmission and integration between the stock markets of the United States, Mexico and Brazil during the terrorist attacks of September 11, 2001, from a Vector Autoregressive Model with Exponential Generalized Autoregressive Conditional Heterokedasticity (VAR-EGARCH). The results suggest that there is a significant asymmetric effect within the markets themselves, implying that when return rates are positive, bad news is more "rationally" valued by market participants and affects asset prices less abruptly. At highs, there seems to be greater market stress reflecting a greater magnitude of the volatility of asset returns. The results also indicate that, when disregarding interactions between markets, the correlations calculated by a restricted model are oversized.