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Evaluating the effect of "Zumwinkel-Affair" and financial crisis on stock prices in Liechtenstein: An unconventional augmented GARCH-approach

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  • Brunhart, Andreas
Abstract
Liechtenstein's economy has been heavily affected by the international economic downturn during the financial crisis. Additionally to the deep world recession, Liechtenstein's financial sector was challenged by the Zumwinkel-Affair (data of thousands of tax evaders were sold to several international tax authorities by a whistleblower). This paper investigates the impact of this affair, separated from the financial crisis, on the daily stock prices of two banks from Liechtenstein: Verwaltungs- und Privatbank (VPB) and Liechtensteinische Landesbank (LLB). The econometric analysis involves an unconventional augmented GARCH-model to analyse the dynamical pattern and other influences on the risk measured by the conditional variance of the stock returns. To evaluate the impact of financial crisis and Zumwinkel-Affair on risk, additional explaining variables have been incorporated into the (therefore augmented) variance equation. As an additional (yet unconventional) feature the lagged squared residuals have been dropped from the GARCH-specification and replaced by squared lagged observed variables such as past stock returns and past stock market performance (this replacement appears to be the superior specification here). Besides other findings, it is shown that both the financial crisis and the Zumwinkel-Affair have a significant (accumulating) effect on risk/volatility of both stocks, but the impact on the volatility of VPB's stock returns is considerably higher compared to LLB's stocks.

Suggested Citation

  • Brunhart, Andreas, 2011. "Evaluating the effect of "Zumwinkel-Affair" and financial crisis on stock prices in Liechtenstein: An unconventional augmented GARCH-approach," KOFL Working Papers 9, Konjunkturforschungsstelle Liechtenstein (KOFL), Vaduz.
    • Handle: RePEc:zbw:koflwp:9
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    References listed on IDEAS

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    1. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
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    4. Robert Kunst, 1997. "Augmented ARCH models for financial time series: stability conditions and empirical evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 7(6), pages 575-586.
    5. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Brunhart, Andreas & Kellermann, Kersten & Schlag, Carsten-Henning, 2012. "Drei Phasen des Potentialwachstums in Liechtenstein," KOFL Working Papers 11, Konjunkturforschungsstelle Liechtenstein (KOFL), Vaduz.

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    More about this item

    Keywords

    Financial Crisis; Tax Affair; Liechtenstein; Financial Institutions; Stock Prices; Stock Price Volatility; Augmented GARCH-models; Augmented Conditional Variance Equation;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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