Error correction and DCC analysis of two stock market returns´ volatility with a factor of oil Price returns: Study of Thailand and Philippine countries

This paper studies the relatedness and the model construction of the Thailand´s and the Philippine´s stock market returns with a factor of oil Price market returns. Empirical results show that we can construct an error correction and a bivariate IGARCH(1, 1) model with a dynamic conditional correlation (DCC) to analyze the relationship of the Thailand´s and the Philippine´s stock market returns. The average estimation value of the DCC coefficient for these two markets equals to 0.2467, this result indicates that the Thailand´s stock return volatility positively affects the Philippine´s stock market. Empirical result also shows that there do not exist the asymmetrical effect on the Thailand´s and the Philippine´s stock markets. And the oil price market return volatility does not significant affect the variation risks of the Thailand´s and the Philippine´s stock markets. Based on the viewpoint of DCC, the error correction and the bivariate IGARCH(1, 1) model with a DCC has the better explanation ability compared to the traditional bivariate GARCH(1, 1) model.