An analysis of returns and volatility spillovers and their determinants in emerging Asian and Middle Eastern countries

Abstract

This study investigates the return spillovers and volatility spillovers from developed markets (e.g., Europe, Japan and the US) into the financial markets of selected emerging countries in Asia and the Middle East and North Africa (MENA) region. Based on constant and trend spillover models, we find evidence of significant spillover effects from developed markets to emerging markets. The results from variance ratios indicate the dominance of US shocks across all emerging markets, though the effect varies widely among countries. New to these literature, we conduct an empirical analysis quantifying the underlying determinants affecting the extent of shock spillovers. The results show that bilateral factors such as trade volume, portfolio investment and distance are significant in explaining the spillover effects.JEL Classification: F15, F36, G12.

Volatility spillovers between real exchange rate returns and real stock price returns in Malaysia

“…Sui and Sun (2016) investigate the dynamic relationships among stock price returns, exchange rate returns, interest differentials, and the U.S. S&P 500 returns in BRICS (Brazil, Russian Federation, India, China, and South Africa) countries. There is a number of studies on volatility spillovers between stock price returns in Malaysia or between Malaysia and other country (Ahmeda & Elsayed, 2018;Balli, Hajhoj, Basherd, & Ghassan, 2015;Liena, Lee, Yang, & Zhang, 2018;Majdoub & Sassi, 2017;Majdouba & Mansour, 2014). The results show the significant spillover effects from exchange rate returns to stock price returns in the short run and not vice versa.…”

“…Moreover, the spillover effects are stronger between exchange rate returns and stock price returns in the global financial crisis, 2008. There is a number of studies on volatility spillovers between stock price returns in Malaysia or between Malaysia and other country (Ahmeda & Elsayed, 2018;Balli, Hajhoj, Basherd, & Ghassan, 2015;Liena, Lee, Yang, & Zhang, 2018;Majdoub & Sassi, 2017;Majdouba & Mansour, 2014). Majdoub and Sassi (2017) report that Islamic stock price volatility spillover between Chinese and Malaysia stock price is highly correlated in the short run and long run.…”

Volatility spillovers under difference in the degree of market integration: Evidence from the selected Asian and Eastern European stock markets

“…To achieve the first objective we adopt the framework of Balli et al (2015) as well as Mukherjee and Mishra (2010); Ng (2000); Bekaert and Harvey (1997) in working the volatility spillover models for the equity returns from the originator world market to the ten recipient stock markets. The effects of volatility spillover from major stock markets regionally, China in Asian markets and Russia in Eastern Europe markets, to the rest four stock markets are also taken into consideration to formulate their respective univariate AR-GARCH-M(p,q) models.…”

“…The detailed assessments of the level and the nature of financial integration among stock markets are thus necessary. Such analysis can shed light on the source of shock spillover across markets (Balli et al, 2015). Accordingly, we expect that the event of volatility spillover may occur only for the stock markets which have higher integration with the world market and the major stock market in the region such as China in Asia or Russia among the Eastern European stock markets.…”

Stock Market Return and Volatility Spillovers: The Case of Selected Muslim Majority Countries

“…In the previous studies, mostly the value of volatility spillover is more than returns (Balli, Hajhoj, Basher, & Ghassan, 2015;Li & Giles, 2015;Louzis, 2012;Yilmaz, 2010). In our study, the case is different and startling as the returns' spillover is more.…”