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The mean/volatility asymmetry in Asian stock markets

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  • Yung-Shi Liau
  • Jack Yang

Abstract

This study tests the asymmetric responses of mean reversion and volatility using the asymmetric nonlinear smooth transition generalized autoregressive conditional heteroskedasticity (ANST-GARCH) model. The asymmetric mean reversion and volatility reflect the fact that investors react more strongly to bad news than to good news. Since risk averse investors overweigh more severely the potentials of bad news after a heavy loss, this study applies daily stock index returns from Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan and Thailand during 1994-2005 to test this hypothesis. The result shows that following the Asian financial crisis most markets displayed increased sensitivity to bad news, which confirms the hypothesis.

Suggested Citation

  • Yung-Shi Liau & Jack Yang, 2008. "The mean/volatility asymmetry in Asian stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 18(5), pages 411-419.
    • Handle: RePEc:taf:apfiec:v:18:y:2008:i:5:p:411-419
    DOI: 10.1080/09603100600959878
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    2. Hsiang-Hsi Liu & Chun-Chou Wu & Yi Kai Su, 2012. "The influence of direct cross-straits shipping on the smooth transition dynamics of stock volatilities of shipping companies," Applied Financial Economics, Taylor & Francis Journals, vol. 22(16), pages 1331-1342, August.
    3. Imad Moosa & Sulaiman Al-Abduljader, 2010. "A test of the news model of stock price determination in an emerging market: the case of Kuwait," Applied Financial Economics, Taylor & Francis Journals, vol. 20(5), pages 397-405.
    4. Piotr Wdowinski & Marta Malecka, 2010. "Asymmetry in Volatility: A Comparison of Developed and Transition Stock Markets," CESifo Working Paper Series 2974, CESifo.
    5. Mukta Kanvinde & Muneer Shaik, 2020. "Are BRICS Stock Market Indices Mean Reverting? Evidence Based on Expected Lifetime Range Ratio," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 19(2), pages 169-186, September.

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