Munich Personal RePEc Archive

Measuring the Common Component of Stock Market Fluctuations in the Asia-Pacific Region

Mapa, Dennis S. and Briones, Kristine Joy S. (2006): Measuring the Common Component of Stock Market Fluctuations in the Asia-Pacific Region. Published in: The Philippine Statistician , Vol. 55, No. 1-4 (December 2006): pp. 103-117.

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Abstract

This paper fits Generalized Auto-Regressive Conditional Heteroskedasticity (GARCH) models to the daily closing stock market indices of Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore, and Taiwan to compute for time-varying weights associated with the volatilities of individual indices. These weights and the returns of the various indices were then used to determine the common component of stock market returns. Our results suggest that a common component of the Asia-Pacific stock market returns exists, which significantly explains the individual country’s stock market returns. We also find that stock markets of Korea and Hong Kong are the two most sensitive to changes in the common component stock returns, while China’s stock market is the least sensitive.

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