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.