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Empirical investigation on the relationship between Japanese and Asian emerging equity markets


  • Ramaprasad Bhar
  • Shigeyuki Hamori


This study analyses the stock return characteristics for Japan and Asian emerging markets using monthly return to capture the changes in mean-variance in a two state framework. An unobserved Markov process drives the evolution of the states. The approach allows both the mean and the variance to depend on the unobserved states and the model is estimated in one step. The propensity of any market to stay in a particular state is inferred from the estimated model parameters. The study then extends the analysis by examining two statistical techniques i.e. the causality in variance by Cheung and Ng (1996) and the concordance measure developed by Harding and Pagan (1999).

Suggested Citation

  • Ramaprasad Bhar & Shigeyuki Hamori, 2006. "Empirical investigation on the relationship between Japanese and Asian emerging equity markets," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(2), pages 77-86, March.
  • Handle: RePEc:taf:apfelt:v:2:y:2006:i:2:p:77-86

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    References listed on IDEAS

    1. Turner, Christopher M. & Startz, Richard & Nelson, Charles R., 1989. "A Markov model of heteroskedasticity, risk, and learning in the stock market," Journal of Financial Economics, Elsevier, vol. 25(1), pages 3-22, November.
    2. Huntley Schaller & Simon Van Norden, 1997. "Regime switching in stock market returns," Applied Financial Economics, Taylor & Francis Journals, vol. 7(2), pages 177-191.
    3. 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.
    4. Ang, Andrew & Bekaert, Geert, 2002. "Regime Switches in Interest Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 163-182, April.
    5. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    6. Cheung, Yin-Wong & Ng, Lilian K., 1996. "A causality-in-variance test and its application to financial market prices," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 33-48.
    7. Brock, W.A. & Dechert, W.D. & LeBaron, B. & Scheinkman, J.A., 1995. "A Test for Independence Based on the Correlation Dimension," Working papers 9520, Wisconsin Madison - Social Systems.
    8. C John McDermott & Alasdair Scott, 1999. "Concordance in business cycles," Reserve Bank of New Zealand Discussion Paper Series G99/7, Reserve Bank of New Zealand.
    9. Don Harding & Adrian Pagan, 1999. "Dissecting the Cycle," Melbourne Institute Working Paper Series wp1999n13, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    10. Kim, Chang-Jin & Nelson, Charles R. & Startz, Richard, 1998. "Testing for mean reversion in heteroskedastic data based on Gibbs-sampling-augmented randomization1," Journal of Empirical Finance, Elsevier, vol. 5(2), pages 131-154, June.
    11. Hamilton, James D. & Susmel, Raul, 1994. "Autoregressive conditional heteroskedasticity and changes in regime," Journal of Econometrics, Elsevier, vol. 64(1-2), pages 307-333.
    12. Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, January.
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    Cited by:

    1. Chen, Guifu & Hamori, Shigeyuki, 2009. "Energy prices and China’s international competitiveness," MPRA Paper 18827, University Library of Munich, Germany.
    2. Nakajima, Tadahiro & Hamori, Shigeyuki, 2013. "Testing causal relationships between wholesale electricity prices and primary energy prices," Energy Policy, Elsevier, vol. 62(C), pages 869-877.

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