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Market interdependence and financial volatility transmission in East Asia

Giampiero Gallo () and Margherita Velucchi ()

International Journal of Finance & Economics, 2009, vol. 14, issue 1, 24-44

Abstract: In this paper, we adapt the Multiplicative Error Model (MEM) to analyze the interdependence of volatility across markets. The MEM specifies the dynamics of a volatility proxy (absolute returns) for one market including terms accounting for an asymmetric impact of good or bad news on the market, and possible volatility spillover terms from other markets. The specific empirical focus of the paper is on the interdependence structure of seven East Asian markets between 1990 and 2005. We pay specific attention to the stability of the significance of the links across markets on subperiods that consider or exclude the 1997 crisis and contrast results between earlier samples and more recent ones. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2009
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DOI: 10.1002/ijfe.382

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