Contagion Effects and Volatility Impulse Responses between US and Asian Stock Markets
Posted: 14 Jun 2018 Last revised: 28 Mar 2023
Date Written: November 28, 2017
Abstract
In this study, we investigated volatility transmission effects be-tween the US and six Asian markets — China, Hong Kong, Japan, Korea, Singapore, and Taiwan — using a bivariate GARCH-BEKK model. We also assessed the impact of shocks on stock market volatility using the volatility impulse response function (VIRF). Our empirical findings extend several recent reports. First, the empirical results of this study show that the US and Asian stock markets are interrelated by their volatility. Second, we found that the 2008 global financial crisis intensified volatility transmission across the US and Asian stock markets. Third, we found that one large shock, the bankruptcy of Lehman Brothers, resulted in an increase in expected conditional volatilities in the post-bankruptcy era. Moreover, the magnitude and the persistence of the volatility impulse responses differed across Asian stock markets due to differing investor reactions to shocks in each market.
Keywords: Asian stock markets, volatility spill over, volatility impulse response analysis, financial crisis
JEL Classification: C58, F36, F65, G15
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