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Volatility spillovers between the Chinese and world equity markets

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  • Zhou, Xiangyi
  • Zhang, Weijin
  • Zhang, Jie

Abstract

We propose measures of the directional volatility spillovers between the Chinese and world equity markets based on Diebold and Yilmaz's (2011b) forecast-error variance decompositions in a generalized vector autoregressive framework. It was found that the US market had dominant volatility impacts on other markets during the subprime mortgage crisis. The other markets were also very volatile, and driven by bad news, their massive volatilities were transmitted back to the US market. The volatility of the Chinese market has had a significantly positive impact on other markets since 2005. The volatility interactions among the markets of China, Hong Kong, and Taiwan were more prominent than those among the Chinese, Western, and other Asian markets were. The major correction of the Chinese stock market between February and July 2007 significantly contributed to the volatility surges of other markets. Owing to the restrictions on foreign investment, the Chinese stock market was not considerably affected in terms of market volatility during the subprime mortgage crisis.

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Bibliographic Info

Article provided by Elsevier in its journal Pacific-Basin Finance Journal.

Volume (Year): 20 (2012)
Issue (Month): 2 ()
Pages: 247-270

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Handle: RePEc:eee:pacfin:v:20:y:2012:i:2:p:247-270

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Web page: http://www.elsevier.com/locate/pacfin

Related research

Keywords: China; World equity markets; Vector autoregression; Variance decomposition; Spillover index; Financial crisis;

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References

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Citations

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Cited by:
  1. Antonakakis, Nikolaos & Dragouni, Mina & Filis, George, 2013. "Time-Varying Interdependencies of Tourism and Economic Growth: Evidence from European Countries," MPRA Paper 48715, University Library of Munich, Germany.
  2. Awartani, Basel & Maghyereh, Aktham I. & Shiab, Mohammad Al, 2013. "Directional spillovers from the U.S. and the Saudi market to equities in the Gulf Cooperation Council countries," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 224-242.
  3. Nikolaos Antonakakis & Max Breitenlechner & Johann Scharler, 2014. "How Strongly are Business Cycles and Financial Cycles Linked in the G7 Countries?," Working Papers 2014-07, Faculty of Economics and Statistics, University of Innsbruck.
  4. Tam, Pui Sun, 2014. "A spatial–temporal analysis of East Asian equity market linkages," Journal of Comparative Economics, Elsevier, vol. 42(2), pages 304-327.
  5. Sugimoto, Kimiko & Matsuki, Takashi & Yoshida, Yushi, 2013. "The global financial crisis: An analysis of the spillover effects on African stock markets," MPRA Paper 50473, University Library of Munich, Germany.
  6. Gilenko, Evgenii & Fedorova, Elena, 2014. "Internal and external spillover effects for the BRIC countries: Multivariate GARCH-in-mean approach," Research in International Business and Finance, Elsevier, vol. 31(C), pages 32-45.
  7. repec:wyi:journl:002202 is not listed on IDEAS
  8. Katharina Diekmann, 2011. "Are there Spillover Effects from Hong Kong and the United States to Chinese Stock Markets?," Working Papers 89, Institute of Empirical Economic Research.
  9. Zheng, Tingguo & Zuo, Haomiao, 2013. "Reexamining the time-varying volatility spillover effects: A Markov switching causality approach," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 643-662.

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