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Volatility spillovers from the US to Australia and China across the GFC

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  • David E Allen

    (School of Accounting, Finance and Economics, Edith Cowan University)

  • Michael McAleer

    (Econometric Institute Erasmus School of Economics Erasmus University Rotterdam and Tinbergen Institute The Netherlands and Institute of Economic Research Kyoto University Japan and Department of Quantitative Economics Complutense University of Madrid Spain)

  • Robert J Powell

    (School of Accounting, Finance and Economics, Edith Cowan University)

  • Abhay Kumar Singh

    (School of Accounting, Finance and Economics, Edith Cowan University)

Abstract

This paper features an analysis of volatility spillover eects from the US market, represented by the S&P500 index to the Australian capital market as represented by the Australian S&P200 for a period running from 12th September 2002 to 9th September 2012. This captures the impact of the Global Financial Crisis (GFC). The GARCH analysis features an exploration of whether there are any spillover eects in the mean equations as well as in the variance equations. We adopt a bi-mean equation to model the conditional mean in the Australian markets plus an ARMA model to capture volatility spillovers from the US. We also apply a Markov Switching GARCH model to explore the existence of regime changes during this period and we also explore the non-constancy of correlations between the markets and apply a moving window of 120 days of daily observations to explore time-varying conditional and tted correlations. There appears to be strong evidence of regime switching behaviour in the Australian market and changes in correlations between the two markets particularly in the period of the GFC. We also apply a tri-variate Cholesky-GARCH model to include potential eects from the Chinese market, as represented by the Hang Seng Index

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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 838.

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Length: 16pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:kyo:wpaper:838

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Keywords: Volatility spillovers; Markov-switching GARCH; Cholesky-GARCH; Time-varying correlations.;

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References

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