International Transmission of Stock Returns and Volatility: Empirical Comparison Between Friends and Foes

Taufiq Choudhry

Emerging Markets Finance and Trade, 2004, vol. 40, issue 4, 33-52

Abstract: This paper investigates stock market mean returns and volatility spillover between stock markets of political and friendly countries. The potential foes and friends are selected according to the political situations in the past ten years. The three pairs of foes tested are Israel-Jordan, India-Pakistan, and Greece-Turkey. The United States has been historically and traditionally friendly toward these six countries. Spillover between the United States and these countries is also investigated. The empirical tests are conducted by means of a nonlinear GARCH-t model. Results indicate bidirectional mean and volatility spillover between two countries not on friendly terms. Results also provide ample evidence that mean and volatility spillover takes place from a larger distant friendly country (the United States) to these smaller emerging markets, but not much the other way around.

Keywords: GARCH-t; meteor shower; spillover; volatility (search for similar items in EconPapers)
Date: 2004
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