An Empirical Analysis of International Stock Market Volatility Transmission
AbstractThis paper examines the interplay between stock market returns and their volatility, focus ingon the Asian and global financial crises of 1997-98 and 2008-09 for Australia, Singapore, the UK, and the US. We use a multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model and weekly data (January 1992-June 2009). Based on the results obtained from the mean return equations, we could not find any significant impact on returns arising from the Asian crisis and more recent global financial crises across these four markets. However, both crises significantly increased the stock return volatilities across all of the four markets. Not surprisingly, it is also found that the US stock market is the most crucial market impacting on the volatilities of smaller economies such as Australia. Our results provide evidence of own and cross ARCH and GARCH effects among all four markets, suggesting the existence of significant volatility and cross volatility spillovers across all four markets. A high degree of time-varying co-volatility among these markets indicates that it is riskier for investors to diversify their financial portfolio by acquiring stocks withinthese four countries only.
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Bibliographic InfoPaper provided by School of Economics, University of Wollongong, NSW, Australia in its series Economics Working Papers with number wp10-09.
Length: 22 pages
Date of creation: 2010
Date of revision:
Contact details of provider:
Postal: School of Economics, University of Wollongong, Northfields Avenue, Wollongong NSW 2522 Australia
Phone: +612 4221-3659
Fax: +612 4221-3725
Web page: http://business.uow.edu.au/econ/index.html
More information through EDIRC
Financial crises; Stock market volatility transmission; Multivariate GARCH model;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-FMK-2010-11-27 (Financial Markets)
- NEP-IFN-2010-11-27 (International Finance)
- NEP-SEA-2010-11-27 (South East Asia)
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