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An empirical analysis of the US stock market and output growth volatility spillover effects on three Anglo-Saxon countries

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  • Abbas Valadkhani
  • George Chen

Abstract

This paper examines the dynamic and switching effects of volatility spillovers arising from US stock market returns and GDP growth on those of Australia, Canada and the UK. For this purpose, we use quarterly data (1961q1--2013q1) and a constant probability Markov regime switching model. We found that the US stock market volatility significantly affects the stock market volatility of all three countries at least in one of the two specified regimes over time. However, the stock market volatilities in none of the three countries are contemporaneously influenced by the US output volatility even after allowing for two distinct regimes. On the other hand, the US stock market volatility exerts significant influences on the output volatilities of both Australia and the UK. Compared with Australia and the UK, Canada and the US show substantial output volatility co-movements, thereby confirming the close association between the two neighbouring economies through the NAFTA (North American Free Trade Agreement). We conclude that shocks emanating from the US stock market have unequivocal flow-on effects on the output and return volatilities of the other economies.

Suggested Citation

  • Abbas Valadkhani & George Chen, 2014. "An empirical analysis of the US stock market and output growth volatility spillover effects on three Anglo-Saxon countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 28(3), pages 323-335, May.
    • Handle: RePEc:taf:irapec:v:28:y:2014:i:3:p:323-335
    DOI: 10.1080/02692171.2013.872085
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    References listed on IDEAS

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    1. Nicholas Apergis & Anthony Rezitis, 2001. "Asymmetric Cross‐market Volatility Spillovers: Evidence from Daily Data on Equity and Foreign Exchange Markets," Manchester School, University of Manchester, vol. 69(s1), pages 81-96.
    2. Alex Trew, 2006. "Finance and Growth: A Critical Survey," The Economic Record, The Economic Society of Australia, vol. 82(259), pages 481-490, December.
    3. Francis X. Diebold & Kamil Yılmaz, 2007. "Macroeconomic Volatility and Stock Market Volatility,World-Wide," Koç University-TUSIAD Economic Research Forum Working Papers 0711, Koc University-TUSIAD Economic Research Forum.
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    2. Abdul Wahid & Muhammad Zubair Mumtaz, 2018. "The Paradigm Shift in the Pakistan Stock Exchange’s Financial Integration Post-FTA and CPEC," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 23(1), pages 21-50, Jan-June.
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    5. Kushneel Prakash & Sefa Awaworyi Churchill & Russell Smyth, 2022. "Petrol prices and obesity," Health Economics, John Wiley & Sons, Ltd., vol. 31(7), pages 1381-1401, July.

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