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Volatility Spillovers from the Chinese Stock Market to Economic Neighbours

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Author Info

  • David E. Allena
  • Ron Amrama
  • Michael McAleer

    ()
    (University of Canterbury)

Abstract

This paper examines whether there is evidence of spillovers of volatility from the Chinese stock market to its neighbours and trading partners, including Australia, Hong Kong, Singapore, Japan and USA. China’s increasing integration into the global market may have important consequences for investors in related markets. In order to capture these potential effects, we explore these issues using an Autoregressive Moving Average (ARMA) return equation. A univariate GARCH model is then adopted to test for the persistence of volatility in stock market returns, as represented by stock market indices. Finally, univariate GARCH, multivariate VARMA-GARCH, and multivariate VARMA-AGARCH models are used to test for constant conditional correlations and volatility spillover effects across these markets. Each model is used to calculate the conditional volatility between both the Shenzhen and Shanghai Chinese markets and several other markets around the Pacific Basin Area, including Australia, Hong Kong, Japan, Taiwan and Singapore, during four distinct periods, beginning 27 August 1991 and ending 17 November 2010. The empirical results show some evidence of volatility spillovers across these markets in the pre-GFC periods, but there is little evidence of spillover effects from China to related markets during the GFC. This is presumably because the GFC was initially a US phenomenon, before spreading to developed markets around the globe, so that it was not a Chinese phenomenon.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/1142.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 11/42.

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Length: 25 pages
Date of creation: 01 Dec 2011
Date of revision:
Handle: RePEc:cbt:econwp:11/42

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Keywords: Volatility spillovers; VARMA-GARCH; VARMA-AGARCH; Chinese stock market;

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Citations

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Cited by:
  1. David E Allen & Mohammad.A. Ashraf & Michael McAleer & Robert J Powell & Abhay K Singh, 2013. "Financial Dependence Analysis: Applications of Vine Copulae," KIER Working Papers 843, Kyoto University, Institute of Economic Research.
  2. David E Allen & Michael McAleer & Robert Powell & Abhay Kumar Singh, 2013. "Nonparametric Multiple Change Point Analysis of the Global Financial Crisis," Working papers 2013-02, Edith Cowan University, School of Business.
  3. Chia-Lin Chang & David E. Allen & Michael McAleer & Teodosio Perez Amaral, 2013. "Risk Modeling and Management: An Overview," Working Papers in Economics 13/22, University of Canterbury, Department of Economics and Finance.

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