2010 Vol. 4 Num. 2 - GCG: Revista de Globalización, Competitividad ...

Eduardo Ortas, José M. Moneva & Manuel SalvadorFigure 1: FTSE4Good-IBEX and IBEX35 daily closing prices11116,00014,00012,00010,0008,0006,0004,000May 08Jul 08Sep 08Nov 08Jan 09Mar 09May 09Jul 09Sep 09Nov 09Jan 10FTSE4Good-IBEXIBEX35Figure 2: FTSE4Good-IBEX and IBEX35 daily returns12%8%4%0%-4%-8%-12%May 08Jul 08Sep 08Nov 08Jan 09Mar 09May 09Jul 09Sep 09Nov 09Jan 10FTSE4Good-IBEXIBEX35Figure 1 shows that the closing prices series are non-stationary. On the other hand, returnseries (Figure 2) seem to be stationary on their first moment, but they are highly heteroskedastic,with the higher volatility levels running from September 2008 to December 2008,a point that will be analysed later in this paper. Furthermore, the volatility clustering effectis present, in which large changes tend to be followed by large changes of either sign, andsmall changes tend to be followed by small changes in all cases. In order to confirm theseaspects parametrically, Table IV shows the results obtained after applying the Dickey–Fuller(DF) and Phillips–Perron (PP) stationarity tests and ARCH (five lags) and Ljung–Box (LB) (fivelags) tests on squared returns to test the heteroskedasticity and autocorrelation of the residuals.Furthermore, Figures 3 to 6 show the residuals and squared residuals correlograms ofa random walk with intercept model on the return series for both indexes.GCG GEORGETOWN UNIVERSITY - UNIVERSIA 2010 VOL. 4 NUM. 2 ISSN: 1988-7116