Transmission of Volatility between Stock Markets

King, Mervyn; Wadhwani, Sushil

doi:10.1093/rfs/3.1.5

Cited by 1,529 publications

(730 citation statements)

References 12 publications

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“…Reference [2] finds that international correlations are not stable over time, a finding that is also confirmed by [3,4] on monthly returns of industrial countries. In [5][6][7] the authors find that correlations are higher in times of high volatility and [8] finds higher correlations in more recent years. Reference [9] studies the correlations of monthly excess returns for 7 major countries over a thirty-year period and finds increased correlations between markets over time.…”

Section: Literature Reviewmentioning

confidence: 97%

Was There a Contagion during the Asian Crises?

Kazemi¹,

Oğuş²

2013

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The contagion of financial crises surrounding the markets around the world has been in the forefront of academic and public discussions. In this paper, we attempt to study the "contagion effect" of the stock market crises around the world by studying the correlations of global stock returns and volatility. We analyze the daily returns of major stock indexes around the world to discover the timing and path of the transmission of shocks that manifest themselves in stock market returns. We construct VARs of major stock market index returns and volatilities. Our work differs from the literature in analyzing spillover effects between emerging markets and other major stock markets.

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Section: Literature Reviewmentioning

confidence: 97%

Was There a Contagion during the Asian Crises?

Kazemi¹,

Oğuş²

2013

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“…On the other hand, analyzing the transmission of volatility between emerging equity markets may also shed light on the nature of information flows between international markets. In this vein, King and Wadhwani (1990) explain the volatility spillovers by the rational attempts of agents to use imperfect information about the events relevant to equity prices. Lin et al (1994) revealed that foreign exchange returns can significantly affect the domestic equity returns for Japan and US.…”

Section: Review Of Previous Studiesmentioning

confidence: 99%

Emerging Equity Markets Connectedness, Portfolio Hedging Strategies and Effectiveness

Harrathi¹,

Aloui²,

Houfi³

et al. 2016

International Journal of Financial Research

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In this paper, we investigate the volatility spillovers between equity market indexes for Islamic and non-Islamic emerging countries. To do so, we implement a combination of a vector autoregressive (VAR) and a multivariate GARCH models under BEKK specification (VAR-BEKK-MGARCH) models with constant conditional correlation (CCC) and dynamic conditional correlations (DCC) for daily equity returns of six markets, namely Turkey, Indonesia, Egypt, Mexico, China and Brazil. Our findings disclose strong volatility spillovers among the Islamic and the non-Islamic country' market returns. The volatility spillovers are time varying and are affected by the occurrence of recent financial crises. Furthermore, we extent the volatility spillovers analysis by providing some financial implications in terms of optimal portfolio' allocations and hedging effectiveness. Specifically, we estimate the optimal weights for a minimum risk multi-country portfolios, we compute the hedge ratio and we assess the hedging strategies' effectiveness. Our findings provide prominent implications for policy makers and portfolio managers in terms of the stability of the financial systems, asset allocation decisions and designing portfolio hedging strategies.

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“…According to financial literature, Efficient Market Hypothesis (EMH) explains the price discovery mechanism, but empirically, even the weak form of efficiency is violated, and this can be explained by factors other than economic rationale (King & Wadhwani, 1990). On the other hand, domestic returns and volatilities are not only influenced by domestic factors but also international contexts (Gebka & Serwa, 2007;Lin, Engle, & Ito, 1994) that could be regional, cultural, and religious (Ng, 2000).…”

Section: Introductionmentioning

confidence: 99%

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

2017

J. Islam. bus. manag.

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KeywordsReturn Spillover Index Volatility Spillover Index Religion CultureReceived: 15 January 2017 Accepted: 06 June 2017Abstract. As integration is related to systemic risk and rewards in the stock markets, it is coupled with both weak and semi-strong forms of efficiency. Little evidence is found on return and volatility spillover within the Muslim country markets. This study investigates if the Muslim majority countries are interconnected with each other through returns and volatility spillovers among the stock markets for the span of about twenty years from July 1996 to February 2016. Vector Autoregressive (VAR) method as applied by Diebold and Yilmaz (2009) has been used to find the static and dynamic spillover indices of nine countries with religious similarity in 80% of the population and their three developed counterparts. We found overall significant spillovers; returns connectedness was 36.5% and volatility connectedness 22.4%. The study did not find any outright integration or evidence of spillover from developed markets to the Muslim majority group. However, US and Japan caused returns and volatility shocks respectively. In dynamic analysis, both returns and volatility spillover showed a gentle and stable increase in integration. Moreover, volatility spillover responded not only to the major global financial crises but also to the Arab Spring. These findings have major implications for diversified investment in the global financial market.

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Transmission of Volatility between Stock Markets

Cited by 1,529 publications

References 12 publications

Was There a Contagion during the Asian Crises?

Was There a Contagion during the Asian Crises?

Emerging Equity Markets Connectedness, Portfolio Hedging Strategies and Effectiveness

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

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