Investigating Abnormal Volatility Transmission Patterns Between Emerging and Developed Stock Markets: A Case Study

Abstract

The main aim of this paper is to investigate volatility spillover effects, the impact of past volatility on present market movements, the reaction to positive and negative news, among selected financial markets. The sample stock markets are geographically dispersed on different continents, respectively North America, Europe and Asia. We also investigate whether selected emerging stock markets capture the volatility patterns of developed stock markets located in the same region. The empirical analysis is focused on seven developed stock market indices, i.e. IBEX35 (Spain), DJIA (USA), FTSE100 (UK), TSX Composite (Canada), NIKKEI225 (Japan), DAX (Germany), CAC40 (France) and five emerging stock market indices, i.e. BET (Romania), WIG20 (Poland), BSE (India), SSE Composite (China) and BUX (Hungary) from January 2000 to June 2018. The econometric framework includes symmetric and asymmetric GARCH models i.e. EGARCH and GJR which are performed in order to capture asymmetric volatility clustering, interdependence, correlations, financial integration and leptokurtosis. Symmetric and asymmetric GARCH models revealed that all selected financial markets are highly volatile, including the presence of leverage effect. The stock markets in Hungary, USA, Germany, India and Canada exhibit high positive volatility after global financial crisis.

Financial Market Interconnections Analyzed Using GARCH Univariate and Multivariate Models

“…Hung (2020), by using the GARCH-BEKK model, studies the frequency over time of the spillover effect on different stock markets and the empirical results obtained showed a clear existence of the spread of volatility, as well as correlations between the different markets studied. Spulbar et al (2020) investigated the existence of volatility spillovers based on symmetric and asymmetric GARCH models such as EGARCH and GJR from January 2000 to June 2018 for a cluster of international emerging and developed stock markets. Moreover, Trivedi et al (2021) examined the presence of volatility clustering, correlation and comovements between certain emerging and developed European stock markets by using GARCH family models from January 2000 to July 2018.…”

Financial Contagion Patterns in Individual Economic Sectors. The Day-of-the-Week Effect from the Polish, Russian and Romanian Markets

“…They show that financial contagion has been identified on these markets between 1998 and 2014, but the process is stronger during crisis periods. Trivedi et al (2021) and Spulbar et al (2020) also study the evolution of comovements for a selected number of developed and emerging markets (8 and 12, respectively). However, they employ a different approach, based on the GARCH family models which investigate the presence of the leverage effect.…”

Stock Market Volatility and Persistence: Evidence from High-Income and Middle-Income Economies

“…Furthermore, the broad categorization of countries in studies (e.g., Spulbar, Trivedi, & Birau, 2020;Mallikarjuna & Rao, 2019) limits relevance to high-income economies (HIEs) and middle-income economies (MIEs). To uncover details unique to HIEs and MIEs, this study focuses on stock market volatility and persistence in HIEs (i.e., Canada, Eurozone, France, Germany, Hong Kong, Japan, Korea, Taiwan, UK, and the U.S.) and MIEs (i.e., Argentina, Brazil, China, India, Indonesia, Mexico, and Pakistan).…”