A Study of Stock Market Linkages between the US and Frontier Markets Dissertation

thesis or dissertation chair

fiu authors

  • Todorov, Galin Kostadinov


  • My dissertation investigates the financial linkages and transmission of economic shocks between the US and the smallest emerging markets (frontier markets).

    The first chapter sets up an empirical model that examines the impact of US market returns and conditional volatility on the returns and conditional volatilities of twenty-one frontier markets. The model is estimated via maximum likelihood; utilizes the GARCH model of errors, and is applied to daily country data from the MSCI Barra. We find limited, but statistically significant exposure of Frontier markets to shocks from the US. Our results suggest that it is not the lagged US market returns that have impact; rather it is the expected US market returns that influence frontier market returns

    The second chapter sets up an empirical time-varying parameter (TVP) model to explore the time-variation in the impact of mean US returns on mean Frontier market returns. The model utilizes the Kalman filter algorithm as well as the GARCH model of errors and is applied to daily country data from the MSCI Barra. The TVP model detects

    statistically significant time-variation in the impact of US returns and low, but statistically and quantitatively important impact of US market conditional volatility.

    The third chapter studies the risk-return relationship in twenty Frontier country stock markets by setting up an international version of the intertemporal capital asset pricing model. The systematic risk in this model comes from covariance of Frontier market stock index returns with world returns. Both the systematic risk and risk premium are time-varying in our model. We also incorporate own country variances as additional determinants of Frontier country returns. Our results suggest statistically significant impact of both world and own country risk in explaining Frontier country returns. Time-variation in the world risk premium is also found to be statistically significant for most Frontier market returns. However, own country risk is found to be quantitatively more important.

publication date

  • July 2, 2012


  • Contagion
  • Dynamic Conditional Correlations
  • Financial Crisis
  • Financial Spillovers
  • Frontier Markets
  • Risk Premiums
  • Stock Market Returns
  • Time-Varying Beta
  • Time-Varying Parameters

Digital Object Identifier (DOI)