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An Empirical Analysis of International Stock Market Volatility Transmission

Indika Karunanayake, Abbas Valadkhani and Martin O'Brien ()
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Indika Karunanayake: University of Wollongong, http://www.uow.edu.au/index.html
Martin O'Brien: University of Wollongong

Economics Working Papers from School of Economics, University of Wollongong, NSW, Australia

Abstract: This paper examines the interplay between stock market returns and their volatility, focus ingon the Asian and global financial crises of 1997-98 and 2008-09 for Australia, Singapore, the UK, and the US. We use a multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model and weekly data (January 1992-June 2009). Based on the results obtained from the mean return equations, we could not find any significant impact on returns arising from the Asian crisis and more recent global financial crises across these four markets. However, both crises significantly increased the stock return volatilities across all of the four markets. Not surprisingly, it is also found that the US stock market is the most crucial market impacting on the volatilities of smaller economies such as Australia. Our results provide evidence of own and cross ARCH and GARCH effects among all four markets, suggesting the existence of significant volatility and cross volatility spillovers across all four markets. A high degree of time-varying co-volatility among these markets indicates that it is riskier for investors to diversify their financial portfolio by acquiring stocks withinthese four countries only.

Keywords: Financial crises; Stock market volatility transmission; Multivariate GARCH model (search for similar items in EconPapers)
JEL-codes: C58 G01 G15 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2010
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-sea
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