Volatility Transmission Between the Japanese Stock Market and the Western Stock Market Indices: Time & Frequency Domain Connectedness Analysis with High-Frequency Data

Stock markets are the main source of financial fragility and the spillover effect due to the high level of connectedness. This study focuses on the connectedness between the Japanese stock market and the major Western stock market indices by performing time and frequency-domain connectedness analysis for the period between 4 January 2002, and 29 September 2020. The time-domain analysis shows that there is a high connectedness among stock market indices, and the net transmitter indices are SPX and AEX while net receiver indices are AORD and N225. The frequency-based analysis highlights that the connectedness between markets in the long term contains more information in contrast to short and medium terms. Similar to time-domain results, SPX is the net transmitter and N225 is the net receiver market indices in long term. Moreover, the dynamic analysis results illustrate the turbulent times of the volatility spillover in the long term with high and short-medium run with low spillover index. Dynamically, time-domain and long-term frequency-domain frameworks’ findings give similar time variation illustrations.