Asymmetric volatility and regional integration: an EGARCH–GJR analysis of Latin American and European equity markets

Abstract

Purpose This study analyzes volatility dynamics and regional financial integration in European and Latin American equity markets under heightened global uncertainty and the growing relevance of sustainable finance. It aims to assess volatility persistence, asymmetric responses to negative information, and the role of intraregional integration in shock transmission and financial stability. Design/methodology/approach Daily equity index returns from representative European and Latin American markets over 2010–2025 are analyzed using asymmetric GARCH-type models (EGARCH and GJR-GARCH) with skewed innovations. Volatility persistence is measured through model parameters and half-life indicators, while financial integration is examined using Dynamic Conditional Correlation (DCC-GARCH) models. Robustness is evaluated through structural stability tests and pre- and post-COVID-19 comparisons. Findings European markets exhibit high volatility persistence but short half-lives (approximately 4–6 days), indicating faster shock absorption. Latin American markets display longer half-lives (around 8–12 days), reflecting more persistent volatility. Asymmetric effects are stronger and more systematic in Europe, while Latin America shows weaker and more heterogeneous responses. Intraregional correlations are extremely high in Europe, limiting diversification, whereas Latin America remains moderately and unevenly integrated. No evidence of structural breaks is found. Originality/value The study offers a unified long-horizon comparative framework combining asymmetric GARCH models, half-life measures, dynamic correlations, and stability diagnostics. It provides robust evidence on structural differences between developed and emerging markets, with implications for investors and policymakers in financial stability and sustainable finance.