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Overseas market shocks and VKOSPI dynamics: A Markov-switching approach

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  • Song, Wonho
  • Ryu, Doojin
  • Webb, Robert I.

Abstract

Using a three-regime Markov-switching framework, with time-varying transition probabilities and exogenous state variables, we find that overseas (US) market factors are more significant than domestic (Korean) factors in explaining VKOSPI dynamics. US financial variables are also more important than domestic variables in modeling time-varying transition probabilities, particularly during crisis periods.

Suggested Citation

  • Song, Wonho & Ryu, Doojin & Webb, Robert I., 2016. "Overseas market shocks and VKOSPI dynamics: A Markov-switching approach," Finance Research Letters, Elsevier, vol. 16(C), pages 275-282.
    • Handle: RePEc:eee:finlet:v:16:y:2016:i:c:p:275-282
    DOI: 10.1016/j.frl.2015.12.007
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    More about this item

    Keywords

    Markov-switching; VKOSPI; VIX; Korea; US;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G19 - Financial Economics - - General Financial Markets - - - Other

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