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Unveiling Market Connectedness: Dynamic Returns Spillovers in Asian Emerging Stock Markets

Author

Listed:
  • Maaz Khan

    (Department of Management Sciences, COMSATS University Islamabad, Islamabad 45550, Pakistan)

  • Mrestyal Khan

    (Department of Management Sciences, Balochistan University of Information Technology, Engineering, & Management Sciences (BUITEMS), Quetta 87300, Pakistan)

  • Umar Nawaz Kayani

    (College of Business, Al Ain University, Abu Dhabi P.O. Box 122612, United Arab Emirates)

  • Khurrum Shahzad Mughal

    (Islamabad Policy Research Institute—IPRI, Islamabad 45710, Pakistan)

  • Roohi Mumtaz

    (Department of Leadership Management & Human Resources (LMHR), International Business School, Teesside University, Middlesbrough TS1 3BX, UK)

Abstract

This study investigates the returns spillovers across the equity markets of Asian emerging economies (China, India, Indonesia, Malaysia, Pakistan, Philippines, South Korea, Taiwan, and Thailand). To achieve this objective, we used two different spillover methodologies (DY 2012 and BK 2018). Moreover, this study used the daily closing prices of equity indices ranging from 5 January 2005 to 13 November 2021. The empirical findings revealed that the total spillover index using DY 2012, and the short-term frequency index using BK 2018, are close to each other, with values of 46.92% and 43.04%, respectively. However, the spillover index value is high, with a value of 56.25% in the long run. Furthermore, the results showed that the stock markets of South Korea and Taiwan are the major spillover transmitters in the Asian emerging markets. Also, the financial association among all emerging Asian equities is at its peak, subject to the mobility of cash flows across the global economies. The results of this study provide meaningful insight for policymakers and investors to implement an effective strategy to overcome the possible influence of any financial crisis in the future. Our paper provides a potential contribution to the financial literature by examining the transmission of spillovers across the Asian emerging stock markets. Furthermore, it provides in-depth information regarding stock market interdependence.

Suggested Citation

  • Maaz Khan & Mrestyal Khan & Umar Nawaz Kayani & Khurrum Shahzad Mughal & Roohi Mumtaz, 2023. "Unveiling Market Connectedness: Dynamic Returns Spillovers in Asian Emerging Stock Markets," IJFS, MDPI, vol. 11(3), pages 1-21, September.
    • Handle: RePEc:gam:jijfss:v:11:y:2023:i:3:p:112-:d:1238452
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    References listed on IDEAS

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    1. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    2. Baele, Lieven, 2005. "Volatility Spillover Effects in European Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(2), pages 373-401, June.
    3. Li, Yanshuang & Shi, Yujie & Shi, Yongdong & Yi, Shangkun & Zhang, Weiping, 2023. "COVID-19 vaccinations and risk spillovers: Evidence from Asia-Pacific stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    4. Ng, Angela, 2000. "Volatility spillover effects from Japan and the US to the Pacific-Basin," Journal of International Money and Finance, Elsevier, vol. 19(2), pages 207-233, April.
    5. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    6. Wagner, Niklas & Szimayer, Alexander, 2004. "Local and spillover shocks in implied market volatility: evidence for the U.S. and Germany," Research in International Business and Finance, Elsevier, vol. 18(3), pages 237-251, September.
    7. Pretorius, Elna, 2002. "Economic determinants of emerging stock market interdependence," Emerging Markets Review, Elsevier, vol. 3(1), pages 84-105, March.
    8. Ali, Fahad & Sensoy, Ahmet & Goodell, John W., 2023. "Identifying diversifiers, hedges, and safe havens among Asia Pacific equity markets during COVID-19: New results for ongoing portfolio allocation," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 744-792.
    9. Korinek, Anton, 2018. "Regulating capital flows to emerging markets: An externality view," Journal of International Economics, Elsevier, vol. 111(C), pages 61-80.
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    Cited by:

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    2. Umar Nawaz Kayani & Roohi Mumtaz & Mochammad Fahlevi & Hassan Nasseredine & Acep Hadinata, 2024. "Unbridling the Economic Growth and Environmental Nexus in Pakistan," International Journal of Energy Economics and Policy, Econjournals, vol. 14(1), pages 488-495, January.

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