IDEAS home Printed from
   My bibliography  Save this article

Financial Crises And International Stock Market Volatility Transmission




This paper examines the interplay between stock market returns and their volatility, focusing on 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 investors will be highly unlikely to benefit from diversifying their financial portfolio by acquiring stocks within these four countries only. Copyright 2010 The Authors. Australian Economic Papers 2010 Blackwell Publishing Ltd/University of Adelaide and Flinders University .

Suggested Citation

  • Indika Karunanayake & Abbas Valadkhani & Martin O'Brien, 2010. "Financial Crises And International Stock Market Volatility Transmission," Australian Economic Papers, Wiley Blackwell, vol. 49(3), pages 209-221, September.
  • Handle: RePEc:bla:ausecp:v:49:y:2010:i:3:p:209-221

    Download full text from publisher

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. Bollerslev, Tim & Engle, Robert F & Wooldridge, Jeffrey M, 1988. "A Capital Asset Pricing Model with Time-Varying Covariances," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 116-131, February.
    2. Kim, Sang W. & Rogers, John H., 1995. "International stock price spillovers and market liberalization: Evidence from Korea, Japan, and the United States," Journal of Empirical Finance, Elsevier, vol. 2(2), pages 117-133, June.
    3. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
    4. Ernst R. Berndt & Bronwyn H. Hall & Robert E. Hall & Jerry A. Hausman, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 653-665 National Bureau of Economic Research, Inc.
    5. Hassan, Syed Aun & Malik, Farooq, 2007. "Multivariate GARCH modeling of sector volatility transmission," The Quarterly Review of Economics and Finance, Elsevier, vol. 47(3), pages 470-480, July.
    6. 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.
    7. Timothy J. Brailsford, 1996. "Volatility Spillovers Across the Tasman," Australian Journal of Management, Australian School of Business, vol. 21(1), pages 13-27, June.
    8. Hong Li, 2007. "International linkages of the Chinese stock exchanges: a multivariate GARCH analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 17(4), pages 285-297.
    9. Angelos Kanas, 1998. "Volatility spillovers across equity markets: European evidence," Applied Financial Economics, Taylor & Francis Journals, vol. 8(3), pages 245-256.
    10. Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-1153, December.
    11. Andrew Worthington & Helen Higgs, 2004. "Transmission of equity returns and volatility in Asian developed and emerging markets: a multivariate GARCH analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(1), pages 71-80.
    12. Panayiotis Theodossiou & Unro Lee, 1993. "Mean And Volatility Spillovers Across Major National Stock Markets: Further Empirical Evidence," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 337-350, December.
    13. Paul D. McNelis, 1993. "The Response of Australian Stock, Foreign Exchange and Bond Markets to Foreign Asset Returns and Volatilities," RBA Research Discussion Papers rdp9301, Reserve Bank of Australia.
    14. Theodossiou, Panayiotis, et al, 1997. "Volatility Reversion and Correlation Structure of Returns in Major International Stock Markets," The Financial Review, Eastern Finance Association, vol. 32(2), pages 205-224, May.
    15. Luci Ellis & Eleanor Lewis, 2001. "The Response of Financial Markets in Australia and New Zealand to News about the Asian Crisis," RBA Research Discussion Papers rdp2001-03, Reserve Bank of Australia.
    16. Kam C. Chan & Benton E. Gup & Ming-Shiun Pan, 1997. "International Stock Market Efficiency and Integration: A Study of Eighteen Nations," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 24(6), pages 803-813.
    17. Eun, Cheol S. & Shim, Sangdal, 1989. "International Transmission of Stock Market Movements," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(02), pages 241-256, June.
    18. Mario Reyes, 2001. "Asymmetric volatility spillover in the Tokyo stock exchange," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 25(2), pages 206-213, June.
    19. In, Francis, 2007. "Volatility spillovers across international swap markets: The US, Japan, and the UK," Journal of International Money and Finance, Elsevier, vol. 26(3), pages 329-341, April.
    20. Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. repec:ibn:ibrjnl:v:10:y:2017:i:8:p:173-191 is not listed on IDEAS
    2. repec:ipg:wpaper:2014-401 is not listed on IDEAS
    3. Balcilar, Mehmet & Demirer, Rıza & Hammoudeh, Shawkat, 2014. "What drives herding in oil-rich, developing stock markets? Relative roles of own volatility and global factors," The North American Journal of Economics and Finance, Elsevier, vol. 29(C), pages 418-440.
    4. repec:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9391-0 is not listed on IDEAS
    5. Chortareas, Georgios & Cipollini, Andrea & Eissa, Mohamed Abdelaziz, 2012. "Switching to floating exchange rates, devaluations, and stock returns in MENA countries," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 119-127.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausecp:v:49:y:2010:i:3:p:209-221. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.