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Modelling volatility transmission in regional Asian stock markets

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  • Azimova, Tarana

Abstract

In this paper, we investigate the mechanism of volatility transmission in five regional equity markets in Hong Kong, South Korea, Malaysia, Singapore, and Thailand using the multivariate EGARCH method. Our sample consists of daily stock return data for 10 industries over the period from 14 July 2015 to 29 May 2020. The empirical estimates provide evidence of significant volatility spillover among Asian stock industries. Our model shows that Asian equity industries, tend to exhibit volatility clustering in the conditional variance, and this volatility clustering is asymmetric in nature. The estimations show that Hong Kong, South Korea, Malaysia and Thailand play a more important role in the transmission of financial volatility compared to Singapore. The empirical analysis provides no evidence of an asymmetric effect and volatility persistence in Singapore stock markets. Moreover, the variance of the return series is constant, suggesting weak co-movement of volatility in Singapore with other Asian markets. The immediate practical implication of these empirical findings is that regional investment can bring about potential benefits through risk reduction and portfolio diversification.

Suggested Citation

  • Azimova, Tarana, 2022. "Modelling volatility transmission in regional Asian stock markets," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    • Handle: RePEc:eee:joecas:v:26:y:2022:i:c:s1703494922000342
    DOI: 10.1016/j.jeca.2022.e00274
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    More about this item

    Keywords

    Volatility transmission; Multivariate EGARCH; Asian stock markets; Regional diversification;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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