VOLATILITY SPILLOVER BETWEEN USA AND EGYPTIAN CAPITAL MARKETS

Abstract

This paper investigates volatility spillover among the capital markets of USA and Egypt by applying the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model and multivariate regression analysis. During the period from 01/01/2004 to 30/06/2010, daily closing prices of the two market indices (EGX 30 and S&P 500) are examined. The study turns out that evidence of bidirectional volatility spillover between US capital market and Egyptian capital market is observed. These findings suggest that the developed equity markets and the emerging markets are gradually integrated in the sense that the volatility of each market is transmitted to the other markets.