Return and volatility spillover across equity markets between China and Southeast Asian countries

Abstract

Purpose This paper aims to study the daily returns and volatility spillover effects in common stock prices between China and four countries in Southeast Asia (Vietnam, Thailand, Singapore and Malaysia). Design/methodology/approach The analysis uses a vector autoregression with a bivariate GARCH-BEKK model to capture return linkage and volatility transmission spanning the period including the pre- and post-2008 Global Financial Crisis. Findings The main empirical result is that the volatility of the Chinese market has had a significant impact on the other markets in the data sample. For the stock return, linkage between China and other markets seems to be remarkable during and after the Global Financial Crisis. Notably, the findings also indicate that the stock markets are more substantially integrated into the crisis. Practical implications The results have considerable implications for portfolio managers and institutional investors in the evaluation of investment and asset allocation decisions. The market participants should pay more attention to assess the worth of across linkages among the markets and their volatility transmissions. Additionally, international portfolio managers and hedgers may be better able to understand how the volatility linkage between stock markets interrelated overtime; this situation might provide them benefit in forecasting the behavior of this market by capturing the other market information. Originality/value This paper would complement the emerging body of existing literature by examining how China stock market impacts on their neighboring countries including Vietnam, Thailand, Singapore and Malaysia. Furthermore, this is the first investigation capturing return linkage and volatility spill over between China market and the four Southeast Asian markets by using bivariate VAR-GARCH-BEKK model. The authors believe that the results of this research’s empirical analysis would amplify the systematic understanding of spillover activities between China stock market and other stock markets.

Chinese stock market sectoral indices performance in the time of novel coronavirus pandemic

“…In the recent decade, there has been a considerable surge in Chinese stock market research in conjunction to the intensifying China's influential roles on various aspects of the world including the stock exchanges. Majority of these studies focused on the efficiency (see among others, Chong et al,, 2012;Han et al,, 2019, Liu et al,, 2020 Remarkably, effect of financial crises on Chinese stock market was also commonly examined in the past (Jebran, 2019;Han et al,, 2019;Hung, 2019;Lin and Tsai, 2019;Yousaf andHassan 2019, andWei et al,, 2019), while studies on natural disasters were rare. Two contributions in this aspect are worth-mentioning.…”

Performance of Shanghai Composite Index and Sector Indices in The Beginning of Novel Coronavirus Pandemic

“…In the recent decade, there has been a considerable surge in Chinese stock market research in conjunction to the intensifying China's influential roles on various aspects of the world including the stock exchanges. Majority of these studies focused on the efficiency (see among others, Chong et al, 2012;Han et al, 2019, Liu et al, 2020 andreferences therein) or relationship analysis between Chinese stock market with international stock markets (Zhang and Li, 2014;He et al, 2015;Hung, 2019), commodity markets or/and macroeconomic aspects (Ahmed and Huo, 2020;Zhuang et al, 2015, Jebran, 2019, Wei et al, 2019Wen et al 2019;Yousaf and Hassan, 2019;Zhao et al, 2020 and references therein).…”

“…Remarkably, effect of financial crises on Chinese stock market was also commonly examined in the past (Jebran, 2019;Han et al, 2019;Hung, 2019;Lin and Tsai, 2019;Yousaf andHassan 2019, andWei et al, 2019), while studies on natural disasters were rare. Two contributions in this aspect are worth-mentioning.…”

Does volatility traverse between emerging and frontier stock markets of Asia?

“…A large magnitude of unilateral and feedback volatility transmission between emerging markets (except China) was observed during post-GFC. The considerable highlight for China is that its current market volatility is more driven by its past shock and volatility (Hung, 2019). Even after the robust economy in the Asian belt, it was found less impacted by the volatility of other regional markets.…”