Stock Market Volatility: Examining North America, Europe and Asia

Gamini Premaratne () and Lakshmi Bala
Authors registered in the RePEc Author Service: Lakshmi Balasubramanyan ()

No 479, Econometric Society 2004 Far Eastern Meetings from Econometric Society

Abstract: An understanding of volatility in stock markets is important for determining the cost of capital and for assessing investment and leverage decisions as volatility is synonymous with risk. Substantial changes in volatility of financial markets are capable of having significant negative effects on risk averse investors. Using daily returns from 1992 to 2002, we investigate volatility co-movement between the Singapore stock market and the markets of US, UK, Hong Kong and Japan. In order to gauge volatility comovement, we employ econometric models of (i) Univariate GARCH (ii) Vector Autoregression and (iii) a Multivariate and Asymmetric Multivariate GARCH model with GJR extensions. The empirical results indicate that there is a high degree of volatility co-movement between Singapore stock market and that of Hong Kong, US, Japan and UK (in that order). Results support small but significant volatility spillover from Singapore into Hong Kong, Japan and US markets despite the latter three being dominant markets. Most of the previous research concludes that spillover effects are significant only from the dominant market to the smaller market and that the volatility spillover effects are unidirectional. Our study evinces that it is plausible for volatility to spill over from the smaller market to the dominant market. At a substantive level, studies on volatility co-movement and spillover provide useful information for risk analysis.

Keywords: Multivariate GARCH; Volatility Spillover; comovement (search for similar items in EconPapers)
JEL-codes: C32 F3 G15 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-ets and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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