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STAR-GARCH Models for Stock Market Interactions in the Pacific Basin Region, Japan and US

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Author Info
Giorgio Busetti (Quantitative Methods, Monte Paschi Alternative Investment, Milano, Italy)
Matteo Manera (Department of Statistics, University of Milano-Bicocca, Italy and Fondazione Eni Enrico Mattei, Milano, Italy)

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Abstract

We investigate the financial interactions between countries in the Pacific Basin region (Korea, Singapore, Malaysia, Hong Kong and Taiwan), Japan and US. The originality of the paper is the use of STAR-GARCH models, instead of standard correlation-cointegration techniques. For each country in the Pacific Basin region, we find statistically adequate STAR-GARCH models for the series of stock market daily returns, using Nikkei225 and S&P500 as alternative threshold variables. We provide evidence for the leading role of Japan in the period 1988-1990 (pre-Japanese crisis years), whereas our results suggest that the Pacific Basin region countries are more closely linked with the US during the period 1995-1999 (post- Japanese crisis years).

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2003.43.

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Date of creation: Apr 2003
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Handle: RePEc:fem:femwpa:2003.43

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Related research
Keywords: STAR-GARCH models stock market integration Pacific-Basin capital markets outliers

Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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  1. Franses, Philip Hans & Ghijsels, Hendrik, 1999. "Additive outliers, GARCH and forecasting volatility," International Journal of Forecasting, Elsevier, vol. 15(1), pages 1-9, February. [Downloadable!] (restricted)
  2. Alvaro Escribano & Oscar Jorda, . "Improved Testing And Specification Of Smooth Transition Regression Models," Department of Economics 97-26, California Davis - Department of Economics. [Downloadable!]
  3. Felix Chan & Michael McAleer, 2003. "Estimating smooth transition autoregressive models with GARCH errors in the presence of extreme observations and outliers," Applied Financial Economics, Taylor and Francis Journals, vol. 13(8), pages 581-592, January. [Downloadable!] (restricted)
  4. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September. [Downloadable!] (restricted)
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  5. Ling, Shiqing & McAleer, Michael, 2003. "Asymptotic Theory For A Vector Arma-Garch Model," Econometric Theory, Cambridge University Press, vol. 19(02), pages 280-310, January. [Downloadable!]
  6. Bruce Hansen, 1997. "Inference in TAR Models," Studies in Nonlinear Dynamics & Econometrics, Berkeley Electronic Press, vol. 2(1), pages 1-14. [Downloadable!] (restricted)
  7. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April. [Downloadable!] (restricted)
  8. van Dijk, Dick & Teräsvirta, Timo & Franses, Philip Hans, 2000. "Smooth Transition Autoregressive Models - A Survey of Recent Developments," Working Paper Series in Economics and Finance 380, Stockholm School of Economics, revised 17 Jan 2001. [Downloadable!]
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  9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July. [Downloadable!] (restricted)
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