An Investigation of Return and Volatility Linkages Among Stock Markets: A Study of Emerging Asian and Selected Developed Countries

Journal of International Trade & Commerce, Vol.14, No.4, pp.1-29

29 Pages Posted: 15 Jan 2019

See all articles by Roni Bhowmik

Roni Bhowmik

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science (AMSS); Academy of Mathematics and Systems Science, Chinese Academy of Sciences

Shouyang Wang

Chinese Academy of Sciences (CAS) - Center for Forecasting Science; Academy of Mathematics and Systems Sciences

Date Written: August 22, 2018

Abstract

This article investigates returns and volatility linkages among stock markets, including emerging Asian (e.g., India, China, Bangladesh, Malaysia, Philippine, and South Korea) stock markets and developed (e.g., United States, United Kingdom, Japan, and Singapore) stock markets. During the sample period, these emerging markets have experienced both rapid growth and major turmoil. Firstly, the Generalized Autoregressive Conditional Heteroskedastic (GARCH) family models are used, and the correlation in conditional variances is calculated to show the relationship in the volatilities of the returns in these markets. Then, the cross-correlation function tests are conducted to investigate the causality patterns of the stock returns and volatility. Finally, the Vector Autoregressive (VAR) model is used to study the transmission dynamics in the presence of unexpected shocks. The evidence suggests that both the returns and volatility linkages exist between the emerging Asia and the developed stock markets. From causality test, it is found that both returns and return variances linkages exist between the emerging Asian and selected developed countries. Nevertheless United States influences the other countries most on both the mean and variance patterns. In addition, the volatilities to unexpected shocks in various markets, especially, come from neighboring country markets and more developed country markets.

Keywords: Causality Test, GARCH Models, Returns and Volatility Linkages, Stock Markets, VAR Model

JEL Classification: D53, E32, E44, G10

Suggested Citation

Bhowmik, Roni and Wang, Shouyang, An Investigation of Return and Volatility Linkages Among Stock Markets: A Study of Emerging Asian and Selected Developed Countries (August 22, 2018). Journal of International Trade & Commerce, Vol.14, No.4, pp.1-29, Available at SSRN: https://ssrn.com/abstract=3310169

Roni Bhowmik (Contact Author)

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science (AMSS) ( email )

Beijing
China

Academy of Mathematics and Systems Science, Chinese Academy of Sciences ( email )

55 Zhongguancun DongLu Haidian District
Haidian, Beijing Municipality 100190
China
13269817617 (Phone)
13269817617 (Fax)

Shouyang Wang

Chinese Academy of Sciences (CAS) - Center for Forecasting Science; Academy of Mathematics and Systems Sciences ( email )

China

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