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Return and Volatility Spillovers among the East Asian Equity Markets

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  • Kamil Yilmaz

    () (Koc University)

Abstract

This article examines the extent of contagion and interdependence across the East Asian equity markets since early 1990s and compares the ongoing crisis with earlier episodes. Using the forecast error variance decomposition from a vector autoregression, we derive return and volatility spillover indices over the rolling sub-sample windows. We show that there is substantial difference between the behavior of the East Asian return and volatility spillover indices over time. While the return spillover index reveals increased integration among the East Asian equity markets, the volatility spillover index experiences significant bursts during major market crises, including the East Asian crisis. The fact that both return and volatility spillover indices reached their respective peaks during the current global financial crisis attests to the severity of the current episode.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_0907.pdf
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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 0907.

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Length: 25 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:koc:wpaper:0907

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Keywords: Stock returns; Volatility; Spillovers; Vector autoregression; Variance decomposition;

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References

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  1. Francis X. Diebold & Kamil Yilmaz, 2010. "Better to Give than to Receive: Predictive Directional Measurement of Volatility Spillovers," Koç University-TUSIAD Economic Research Forum Working Papers 1001, Koc University-TUSIAD Economic Research Forum, revised Mar 2010.
  2. Michael P. Dooley & Michael M. Hutchison, 2009. "Transmission of the U.S. Subprime Crisis to Emerging Markets: Evidence on the Decoupling-Recoupling Hypothesis," NBER Working Papers 15120, National Bureau of Economic Research, Inc.
  3. FrancisX. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, 01.
  4. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
  5. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
  6. Francis X. Diebold / Kamil Yilmaz, 2009. "Equity Market Spillovers in the Americas," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 12(2), pages 55-65, August.
  7. Sebastian Edwards & Raul Susmel, 2001. "Volatility Dependence and Contagion in Emerging Equity Markets," NBER Working Papers 8506, National Bureau of Economic Research, Inc.
  8. Nathaniel Frank & Heiko Hesse, 2009. "Financial Spillovers to Emerging Markets during the Global Financial Crisis," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 507-521, December.
  9. Baur, Dirk, 2003. "Testing for contagion--mean and volatility contagion," Journal of Multinational Financial Management, Elsevier, vol. 13(4-5), pages 405-422, December.
  10. Baur, Dirk G. & Fry, Renée A., 2009. "Multivariate contagion and interdependence," Journal of Asian Economics, Elsevier, vol. 20(4), pages 353-366, September.
  11. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
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Cited by:
  1. David E. Allen & Ron Amram & Michael McAleer, 2011. "Volatility Spillovers from the Chinese Stock Market to Economic Neighbours," Documentos del Instituto Complutense de Análisis Económico 2011-38, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  2. Saha, Malayendu & Bhunia, Amalendu, 2012. "How far India has gone down the road towards financial integration with US since subprime crisis? An Econometric Analysis," MPRA Paper 38731, University Library of Munich, Germany.
  3. Hsien-Yi Lee, 2012. "Contagion in International Stock Markets during the Sub Prime Mortgage Crisis," International Journal of Economics and Financial Issues, Econjournals, vol. 2(1), pages 41-53.
  4. Balli, Faruk & Basher, Syed Abul & Jean Louis, Rosmy, 2013. "Sectoral equity returns and portfolio diversification opportunities across the GCC region," MPRA Paper 43687, University Library of Munich, Germany.
  5. David E. Allen & Michael McAleer & R.J. Powell & A.K. Singh, 2013. "Volatility Spillovers from the US to Australia and China across the GFC," Tinbergen Institute Discussion Papers 13-009/III, Tinbergen Institute, revised 01 Feb 2013.
  6. Wang, Jianxin, 2013. "Liquidity commonality among Asian equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1209-1231.

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