Tail Risk Spillover in Asia Pacific Stock Market

19 Pages Posted: 24 Oct 2017 Last revised: 9 Aug 2022

Date Written: October 23, 2017

Abstract

This working paper was written by Tom Fong (Hong Kong Monetary Authority), Ka-Fai Li (Hong Kong Monetary Authority) and Edmund Ho (Hong Kong Monetary Authority).

This paper examines financial linkages among Asia-Pacific stock markets and those between these markets and other global markets. By studying the mean and tail dependences of the 37 stock market indices, we find that while Asia-Pacific stock markets is mainly driven by shocks within the Asia-Pacific region under mean dependence, shocks from regional and non-regional markets are equally considerable to Asia Pacific in the tail. In particular, shocks from Latin America and EMEA have increased notably after the taper tantrum. Moreover, we find that price-earnings ratios can explain the sensitivity of individual Asia-Pacific economy to shocks under the tail dependence, but does not seem to offer any explanatory power under mean dependence.

Keywords: Spillovers; tail risk; vector autoregression; emerging markets

JEL Classification: C32; G15

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, Tail Risk Spillover in Asia Pacific Stock Market (October 23, 2017). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 23/2017, Available at SSRN: https://ssrn.com/abstract=3057827 or http://dx.doi.org/10.2139/ssrn.3057827

Hong Kong Institute for Monetary and Financial Research (Contact Author)

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