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Using multivariate stochastic volatility models to investigate the interactions among NASDAQ and major Asian stock indices

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  • Shieh-Liang Chen
  • Shian-Chang Huang
  • Yi-Mien Lin

Abstract

In this article, we employ a multivariate stochastic volatility (MSV) model to investigate the return and volatility interactions among three major Asian stock indices and the NASDAQ index. Using Laplace approximation to simplify the calculation of the likelihood function of the MSV model, we estimate the complex dynamics among these indices relatively quickly. A interesting phenomenon of our empirical results is that all the market indices examined exhibit significant leverage effects, especially the TWSI (Taiwan) index. Moreover, the return correlations are large in links between these Asian markets, but small in links between every Asian index and the NASDAQ index. However, the volatility correlations display a totally different pattern that is large in links of NASDAQ-TWSI, NASDAQ-KOSPI (South Korea), but small among links between these Asian indices.

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  • Shieh-Liang Chen & Shian-Chang Huang & Yi-Mien Lin, 2007. "Using multivariate stochastic volatility models to investigate the interactions among NASDAQ and major Asian stock indices," Applied Economics Letters, Taylor & Francis Journals, vol. 14(2), pages 127-133.
    • Handle: RePEc:taf:apeclt:v:14:y:2007:i:2:p:127-133
    DOI: 10.1080/13504850500426186
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    2. Mike K. P. So & C. Y. Choi, 2009. "A threshold factor multivariate stochastic volatility model," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(8), pages 712-735.
    3. Yan Zhang, 2018. "China, Japan and the US Stock Markets and the Global Financial Crisis," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(1), pages 23-45, March.
    4. Enzo Weber, 2007. "Volatility and Causality in Asia Pacific Financial Markets," SFB 649 Discussion Papers SFB649DP2007-004, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    5. 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.
    6. A. Maghyereh & B. Awartani, 2012. "Return and volatility spillovers between Dubai financial market and Abu Dhabi Stock Exchange in the UAE," Applied Financial Economics, Taylor & Francis Journals, vol. 22(10), pages 837-848, May.

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