Market interdependence and financial volatility transmission in East Asia

Abstract

In this paper, we adapt the Multiplicative Error Model (MEM) to analyze the interdependence of volatility across markets. The MEM specifies the dynamics of a volatility proxy (absolute returns) for one market including terms accounting for an asymmetric impact of good or bad news on the market, and possible volatility spillover terms from other markets. The specific empirical focus of the paper is on the interdependence structure of seven East Asian markets between 1990 and 2005. We pay specific attention to the stability of the significance of the links across markets on subperiods that consider or exclude the 1997 crisis and contrast results between earlier samples and more recent ones. Copyright © 2008 John Wiley & Sons, Ltd.

Time-varying Return and Volatility Spillover among EAGLEs Stock Markets: A Multivariate GARCH Analysis

“…The insurgence of spillovers from external markets, especially from US, intensely impacted the stock return of EAGLEs markets. The return and volatility spillovers varies across time, which is consistent with the findings of Kearney and Lucey (2004) and Gallo and Velucchi (2009).…”

“…Kearney and Lucey (2004) point out that any attempt to model the integration of stock markets without taking into account the time-variation may yield partial and confusing results. Moreover, Gallo and Velucchi (2009) highlight the existence of unstable volatility spillover effects across markets in the pre-crisis or post 1997 crisis. To handle this problem a verity of techniques have been suggested by researchers like using regime switching models, introducing dummy variables or splitting the sample period.…”

“…To handle this problem a verity of techniques have been suggested by researchers like using regime switching models, introducing dummy variables or splitting the sample period. For example, Bekaert and Harvey (1995) , Cumby and Khanthavit (1998) and Gallo and Velucchi (2009) introduced models that handles alteration in regime and time-varying effect across markets. In a similar fashion, Zheng and Zuo (2013) adopted a Markov-switching causality approach to model and test the potential instability of volatility transmission among US, UK, German, Japan and Hong Kong markets in tranquil and turmoil periods.…”

Time-varying beta during the 2008 financial crisis – evidence from North America and Western Europe

“…A large body of literature has examined the impact of past financial crises on stock markets using various methodological approaches, including GARCH models, cointegration systems, multiplicative error models, VAR models and copulas (Mukherjee and Mishra, 2008; Gallo and Velucchi, 2009; Beirne et al , 2010; Aloui et al , 2011; Wegener et al , 2016, among others).…”

Dynamic linkages between stock markets: the effects of crises and globalization

“…The papers consider diverse approaches and use variety of methodologies. The broad set of theories concerning the topic can be generally divided into two groups: crisiscontingent and non-crisis-contingent theories (Forbes and Rigobon 2002;Gallo and Velucchi 2009). The former explain whether cross-market linkages increase after a shock, whereas the latter assume that transmission mechanisms are always the same and that cross-market linkages do not increase after a shock.…”