Sinha, Pankaj and Sinha, Gyanesh (2010): Volatility Spillover in India, USA and Japan Investigation of Recession Effects.
Download (2033Kb) | Preview
In the past decades, there has been an unprecedented increase in cross border transactions between countries in terms of goods and financial flows. This integration has been fuelled by search of lower risk investments, risk diversification, search for cost effective and more efficient factors of production and dreams of global dominance in the world wide market place. An important result of these capital flows was its impact on linkages of global asset returns and spillover of volatility from one capital market to another. This study aims to understand the spillover effect between the US, the Japan capital markets and Indian equity index (Sensex). We analyze whether the volatility spillover is contemporaneous (directly in the very same day), or dynamic/lagged (with one day lag). A GARCH (1,1) model of modelling volatility has been undertaken for this purpose. This paper concludes that contemporary volatility of the Japan capital markets influenced Sensex in the pre-recession period but in the post recession there was no significant contemporaneous spillover from USA and Japan capital markets to Sensex. However, US became a significant factor while considering dynamic spillover in the post recession era. Also, there was no bidirectional volatility spillover from India to US. But, the study showed evidence of dynamic volatility spillover from Indian market to Japanese Capital market.
|Item Type:||MPRA Paper|
|Original Title:||Volatility Spillover in India, USA and Japan Investigation of Recession Effects|
|English Title:||Volatility Spillover in India, USA and Japan Investigation of Recession Effects|
|Keywords:||Volatility, Spillover, GARCH, Recession effects|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation
C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
C - Mathematical and Quantitative Methods > C2 - Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
G - Financial Economics > G0 - General > G01 - Financial Crises
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
F - International Economics > F3 - International Finance > F39 - Other
|Depositing User:||Pankaj Sinha|
|Date Deposited:||07. Apr 2010 01:48|
|Last Modified:||13. Feb 2013 14:42|
Abraham, A., & Seyyed, F. (2006). Information Transmission between the Gulf Equity Markets of Saudi Arabia and Bahrain. Research in International Business and Finance , 20(3): 276-285.
Al-Deehani, T. (2005). Modelling Volatility Spillover . Journal of Accountig and Finance , 4:35-44.
Baele, L. (2003). Volatility Spillover Effects in European Equity Markets. Faculteit Economie En Bedrijfskunde Working Paper .
Balasubramanyan, L. (2004). Do Time-Varying Covariances, Volatility Comovement and Spillover Matter? Pennsylvania State University Paper .
Balasubramanyan, L., & Premaratne, G. (2003). Volatility Spillover and Comovement: Some New Evidence from Singapore. National University of Singapore Working Paper .
Baur, D., & Jung, R. (2006). Return and Volatility Linkages between the US and the German Stock Markets. Journal of International Money and Finance , 25(4): 598-613.
Bekaert, G., & Wu, G. (2000). Asymetric Volatility and Risk in Equity Markets. Review of Financial Studies , 13:1-42.
Bodie, Z., Kane, A., & Marcus, A. J. (2009). Investments. 8th ed. Boston: McGraw-Hill.
Brooks, C. (2007). Introductory Econometrics for Finance. UK: Cambridge University Press.
Calvet, L. E., Fischer, A., & Thompson, S. (2006). Volatility Comovement: A Multifrequency Approach. Journal of Econometrics , 131: 179-215.
Ceylan, N. B., & Basci, S. (2004). Modelling Stock Returns and Volatility With Some Macroeconomic Variables: A Case for Turkey, mimeo.
Cha, B., & Cheung, Y. (1998). The Impact of the US and the Japanese Equity Markets on the Emerging Asia-Pacific Equity Markets. Asia Pacific Financial Markets , 5(3): 191-209.
Christofi, A., & Pericili, A. (1999). Correlation in Price Changes and Volatility of Major Latin American Stock Markets. Journal of Multinational Financial Management , 9: 79-93.
Eun, C., & Shim, S. (1989). International Transmission of Stock Market Movements. Journal of Finance and Quantitative Analysis , 24:241-256.
Febrian, E., & Herwany, A. (2009). Volatility Forecasting Models and Market Co-integration: A Study on South-East Asian Markets. Indonesian Capital Market Review , 1: 27-42.
Francis, B., Hasan, I., & Hunter, D. (2002). Return Volatility Linkages in International Equity and Currency Markets. Bank of Finaland Discussion Papers .
Gagnon, L., & Karolyi, G. (2006). Price and Volatility Transmission Across Borders. Financial Markets, Institutions and Instrument, 5(3): 107-158 .
Hamao, Y., Masulis, R., & Ng, V. (1990). Correlations in Price Changes and Volatility Across International Stock Markets. Review of Financial Studies , 3: 281-307.
Harju, K., & Hussain, S. (2006). Intraday Linkages Across International Equity Markets. Meddlelanden Working Papers .
Janakiramanan, S., & Lamba, A. (1998). An Emperical Examination of Linkages between Pacific-Basin Stock Markets. Journal of International Financial Markets , 8: 155-173.
Khan, M., Ashraf, S., & Ahmed, S. (2005). Is Indian Stock Market Integrated with US and Japanese Markets? An Emperical Analysis. South Asia Economic Journal , 6(2): 193-207.
Kim, S. (2005). Information Leadership in the Advanced Asia-Pacific Stock Markets: Return, Volatility and Volume Information Spillovers from the U.S. and Japan. Journal of the Japanese & International Economies , 19(3): 338:365.
King, M., & Wadhwani, S. (1990). Transmission of Volatility between Stock Markets. Review of Financial Studies , 3: 3-33.
Kumar, K. K., & Mukhopadyay, C. (2002). Equity Market Interlinkages: Transmission of Volatility -A Case of US and India. NSE Research Paper .
Kupiec, P. (1991). Stock Market Volatility in OECD Countries. Economic Studies , 17: 31-62.
Lamba, A. An Analysis of the Dynamic Relationships Between South Asian and Developed Equity Markets. Tenth Annual Conference of the Multinational Finance Society. Montreal.
Lee, H., & Hong, W. (2008). International Transmission of Swap Market Movements: The US, Korea and China. Sogang University Working Paper .
Lin, W., Engel, R., & Ito, T. (1994). Do Bulls and Bears Move Across Borders? International Transmission of Stock Returns and Volatility. Review of Financial Studies , 7: 507-538.
Mougoue, M., & Bond, M. (1991). Interrelationships Among Exchange Rate Adjusted Total Equity Returns: A Causality Apporach. Akron Business and Economic Review , 22: 51-64.
Mukherjee, K., & Mishra, R. K. (2005). Stock Market Interlinkages: A Study of Indian and World Equity Markets. Indian Journal of Commerce , 58(1): 17-42.
Mukherjee, K., & Mishra, R. (2008). Stock Market Integration and Volatility Spillover: India and its Major Counterparts. Munich Personal Re-Pec Archive .
Mulyadi, M. (2009). Volatility Spillover in Indonesia, USA and Japan Capital Markets. Munich Personal Re-Pec Archive , MPRA Paper No. 16914.
Nath, G. C., & Verma, S. (2003). Study of Common Stochastic Trend and Co-Integration in the Emerging Markets: A Case Study of India, Singapore and Taiwan. NSE Research Paper .
Ng, A. (2000). Volatility Spillover Effects from Japan and US to the Pacific-Basin. Journal of International Money and Finance , 19: 207-233.
Nicholas, S., & Zhu, Z. (2000). Correlations in Returns and Volatility in Pacific-Rim Stock Markets. Open Economics Review , 11: 27-47.
Park, J., & Fatemi, M. (1993). The Linkages Between the Equity Markets of Pacific-Basin Countries and those of U. S., U. K., and Japan: A Vector Autoregression Analysis. Global Finance Journal , 4: 49-64.
Peiro, A., Quesada, J., & Uriel, E. (1998). Transmission of Movements in Stock Markets. The European Journal of Finance , 4(4): 331-343.
Rigobon, R., & Sack, B. (2003). Spillovers Across US Financial Markets. MIT Sloan Working Paper 4304-03. Tanizaki, H., & Hamori, S. (2009). Volatiltity Transmission Between Japan, UK and USA in Daily Stock Returns. Emper Econ , 36(1): 27-54.
Veiga, B. M. (2004). Multivariate Volatility and Spillover Effects in Financial Markets. International Environmental Modelling and Software Society.
Wang, Y., Gunasekarage, A., & Power, D. (2005). Return and Volatility Spillovers from Developed to Emerging Capital Markets: The Case of South Asia. Contemporary Studies in Economic and Financial Analysis , 86: 139-166.
Worthington, A., & Higgs, H. (2000). A Multivariate GARCH Analysis of Equity Returns and Volatility in Asian Equity Markets. Queensland Institute of Technology Working Paper .