Volatility Transmission Between ASEAN-5 Stock Exchanges: An Approach in the Context of China's Stock Market Crash

Rui Manuel Dias, Nuno Teixeira, Pedro Pardal and Teresa Godinho
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Rui Manuel Dias: School of Business Administration, Polytechnic Institute of Setúbal, Portugal
Nuno Teixeira: School of Business Administration, Polytechnic Institute of Setúbal, Portugal
Pedro Pardal: School of Business Administration, Polytechnic Institute of Setúbal, Portugal
Teresa Godinho: School of Business Administration, Polytechnic Institute of Setúbal, Portugal

International Journal of Corporate Finance and Accounting (IJCFA), 2023, vol. 10, issue 1, 1-17

Abstract: This article aims to analyse risk transmission among the financial markets of China and ASEAN-5 in the context of the 2015 Chinese stock market crash. For this purpose, the authors test if (1) the volatility resulting from the 2015 stock market crash has positively influenced risk transmission among ASEAN-5 and China markets and (2) increased risk perception has led to a negative reaction from investors, both in ASEAN-5 as in China markets. The results imply an enhancement of the asymmetric effect, suggesting that during the crash, market volatility responded more significantly to bad news than to good news. In the post-crash, volatility dropped expressively. During the crisis, risk transmission was significant to the point of jeopardising portfolio diversification in the ASEAN-5 markets. In the post-crash, markets tended to balance, mitigating the risk very significantly. The authors believe that there are opportunities for international investors to readjust their portfolios in these regional markets.

Date: 2023
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