Bidirectional volatility transmission between stocks and bond in East Asia – The quantile estimates based on wavelets

Živkov Dejan (), Kovačević Jelena (), Stankov Biljana () and Stefanović Zoran ()
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Živkov Dejan: Novi Sad Business School, University of Novi Sad, Vladimira Perića Valtera 4, 21000, Novi Sad, Serbia
Kovačević Jelena: ‘LEMIT’ Company, Futoška 11, 21000, Novi Sad, Serbia
Stankov Biljana: Novi Sad Business School, University of Novi Sad, Vladimira Perića Valtera 4, 21000, Novi Sad, Serbia
Stefanović Zoran: Waterworks and Sewerage Novi Sad, Masarikova 17, 21000, Novi Sad, Serbia

Studies in Nonlinear Dynamics & Econometrics, 2023, vol. 27, issue 1, 49-65

Abstract: This paper investigates the volatility spillover effect between the national stock and bond markets in the five East Asian emerging countries. We use wavelet signal decomposing technique, GARCH models with different distribution functions and quantile regression. We find that the spillover effect is much higher in more turbulent times, than in calm periods, whereby this effect is stronger from stocks to 10Y bonds, than vice-versa, and it applies for all the countries. Using wavelet signals, we determine that, in most cases, the volatility transmission is higher in short-term horizon, than in midterm and long-term. The effect is stronger in countries with the less developed financial markets (Thailand, Indonesia and Malaysia) than in countries with more developed financial markets (China and Korea), and this is particularly evident in direction from stock to bond markets. Wavelet coherence indicates low volatility correlation in short time-horizons and relatively high correlation in midterm and long-term, which applies for all selected countries. Wavelet cross-correlation indicates that volatility spillover shocks predominantly transmit from bond markets to stock market in more developed China and Korea, whereas volatility shocks from stock market spill over towards bond market in less developed Thailand and Indonesia in very short-time horizon (2–4 days).

Keywords: East Asian emerging countries; GARCH; quantile regression; stocks and bonds; volatility transmission; wavelet (search for similar items in EconPapers)
JEL-codes: C21 C63 D53 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/snde-2020-0113

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