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Asymmetry and Spillover Effects in the North American Equity Markets

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  • Canarella, Giorgio
  • Sapra, Sunil K.
  • Pollard, Stephen K.

Abstract

In this paper we extend the standard shock spillover model of Bekaert and Harvey (1997), Baele (2003) and Ng (2000) to account for asymmetries of return and volatility spillover effects from the US equity market into Canada and Mexico. Unlike previous research, we model the conditional volatility of the returns in each of the three markets using the asymmetric power model of Ding, Granger and Engle (1993). The empirical results indicate that volatility spillover effects, but not mean spillover effects, exhibit an asymmetric behavior, with negative shocks from the US equity market impacting on the conditional volatility of the Canadian and Mexican equity markets more deeply than positive shocks.

Suggested Citation

  • Canarella, Giorgio & Sapra, Sunil K. & Pollard, Stephen K., 2007. "Asymmetry and Spillover Effects in the North American Equity Markets," Economics Discussion Papers 2007-35, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwedp:6162
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    References listed on IDEAS

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    1. Salim M. Darbar & Partha Deb, 1997. "Co-Movements In International Equity Markets," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(3), pages 305-322, September.
    2. Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
    3. Tim Bollerslev & Jeffrey M. Wooldridge, 1988. "Quasi-Maximum Likelihood Estimation of Dynamic Models with Time-Varying Covariances," Working papers 505, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. De Santis, Giorgio & imrohoroglu, Selahattin, 1997. "Stock returns and volatility in emerging financial markets," Journal of International Money and Finance, Elsevier, vol. 16(4), pages 561-579, August.
    5. Masih, Abul M. M. & Masih, Rumi, 1999. "Are Asian stock market fluctuations due mainly to intra-regional contagion effects? Evidence based on Asian emerging stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 251-282, August.
    6. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    7. Booth, G. Geoffrey & Martikainen, Teppo & Tse, Yiuman, 1997. "Price and volatility spillovers in Scandinavian stock markets," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 811-823, June.
    8. 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.
    9. George M. von Furstenberg & Bang Nam Jeon, 1989. "International Stock Price Movements: Links and Messages," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 125-180.
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    Cited by:

    1. Libo Yin & Liyan Han, 2013. "Exogenous Shocks and Information Transmission in Global Copper Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 33(8), pages 724-751, August.
    2. Oscar Yesid Soto Suárez, Christian Camilo Neira Mendieta, 2011. "Canadá: Una Visión Macroeconómica 2002-2006," REVISTA ISOCUANTA 012288, UNIVERSIDAD SANTO TOMÁS.
    3. Galin Todorov & Prasad Bidarkota, 2013. "On international financial spillovers to frontier markets," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 5(4), pages 433-452.
    4. Arturo Lorenzo Valdés & Rocío Durán Vázquez & Leticia Armenta Fraire, 2012. "Conditional Correlation Between Oil and Stock Market Returns: The Case of Mexico," Remef - The Mexican Journal of Economics and Finance, Instituto Mexicano de Ejecutivos de Finanzas. Remef, October.

    More about this item

    Keywords

    APARCH; Asymmetric Spillovers; North American Stock Markets;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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