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Volatility transmission: what do Asia-Pacific markets expect?

  • Ahmed Shamiri
  • Zaidi Isa,
Registered author(s):

    Purpose – The purpose of this paper is to investigate the international information transmission of return and volatility spillovers from US and Japan markets to Asia-Pacific markets using daily stock market return data covering the period (1991-2004). Design/methodology/approach – This paper considers a volatility spillover model by applying a bivariate Baba, Engle, Kraft and Kroner-Generalized Autoregressive Conditional Heteroskedastic model, for each of the Asia-Pacific countries against the Japan and the USA using daily returns for the period (1991-2004). Splitting the sample into two non-overlapping sub-samples, the paper investigates whether the efforts for more economic, monetary and financial integration have fundamentally altered the sources and intensity of volatility spillovers to the individual stock market. Findings – In the majority of the markets under scrutiny, we provide evidence of direct volatility spillovers, running mainly from the Japanese and US markets and pointing to more rapid information transmission during the recent years. First, the volatility of the Asia-Pacific markets is becoming influenced more by the US market for the recent years. Second, for international investors to get profits from the returns of Asia-Pacific securities, it is necessary to pay attention to the US market directly. Third, Korea, Singapore and Hong Kong are among the most Asia-Pacific markets vulnerable to shocks from US investors due to the large ratio of portfolio holding. However, implementing global hedging strategies on Asia-Pacific markets requires the information concerning the Japanese volatility behaviour. Originality/value – This paper should be of interest to a broad practitioners and academics including those interested in modelling volatility for financial market risk management.

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    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 27 (2010)
    Issue (Month): 4 (October)
    Pages: 299-313

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    Handle: RePEc:eme:sefpps:v:27:y:2010:i:4:p:299-313
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    1. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
    2. Miyakoshi, Tatsuyoshi, 2003. "Spillovers of stock return volatility to Asian equity markets from Japan and the US," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 13(4), pages 383-399, October.
    3. Kim, S.W. & Rogers, J.H., 1993. "International Stock Price Spillovers and Market Liberalization: Evidence from Korea, Japan, and the United States," Papers 4-93-7, Pennsylvania State - Department of Economics.
    4. Sachs, Jeffrey & Tornell, Aaron & Velasco, Andres, 1995. "The Collapse of the Mexican Peso: What Have We Learned?," Working Papers 95-22, C.V. Starr Center for Applied Economics, New York University.
    5. Karolyi, G Andrew, 1995. "A Multivariate GARCH Model of International Transmissions of Stock Returns and Volatility: The Case of the United States and Canada," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 11-25, January.
    6. John Wei, K. C. & Liu, Yu-Jane & Yang, Chau-Chen & Chaung, Guey-Shiang, 1995. "Volatility and price change spillover effects across the developed and emerging markets," Pacific-Basin Finance Journal, Elsevier, vol. 3(1), pages 113-136, May.
    7. Robert F. Engle & Victor Ng & Michael Rothschild, 1988. "Asset Pricing with a Factor Arch Covariance Structure: Empirical Estimates for Treasury Bills," NBER Technical Working Papers 0065, National Bureau of Economic Research, Inc.
    8. E.K. Berndt & B.H. Hall & R.E. Hall, 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.
    9. Ng, Angela, 2000. "Volatility spillover effects from Japan and the US to the Pacific-Basin," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 207-233, April.
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