Using CARRX models to study factors affecting the volatilities of Asian equity markets

Chor-yiu (CY) Sin

The North American Journal of Economics and Finance, 2013, vol. 26, issue C, 552-564

Abstract: The range of daily asset prices is often used as a measure of volatility. Using a CARRX (conditional autoregressive range with exogenous variables) model, and the parsimony principle, the paper investigates the factors affecting the volatilities of Asian equity markets. Since the beginning of the new Century, emerging Asian markets such as Taiwan and Shanghai have been undergoing various stages of financial globalization. The volatility of the equity market may not be explained solely by its own dynamics. In this paper, we examine volatility using the following factors: (i) lagged returns; (ii) lagged absolute returns; (iii) own trading volume; (iv) U.S. factors; (v) European factors; and (vi) regional (Asian) factors. Points (i) and (iii) are by and large significant, while (ii) is not. Controlling for (i), (ii) and (iii), we find evidence that the volatility of European markets has spillovers on to both the Taiwan and Tokyo markets, mild evidence that the volatility of the U.S. market has spillovers on to the Hong Kong market, but there are no spillovers from the European or U.S. markets on to the Shanghai market.

Keywords: CARRX; Daily price range; European factor; Parsimony principle; Regional (Asian) factor; U.S. factor; Volatility spillover (search for similar items in EconPapers)
JEL-codes: C5 C52 G11 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:26:y:2013:i:c:p:552-564

DOI: 10.1016/j.najef.2013.02.021

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