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Forecasting Volatility in Asian Stock Markets: Contributions of Local, Regional, and Global Factors

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  • Jianxin Wang

Abstract

This paper examines volatility forecasting for the broad market indices of 12 Asian stock markets. After considering the long memory in volatility and volatility jumps, the paper incorporates local, regional, and global factors into a heterogeneous autoregressive model for volatility forecasting. Compared to several existing studies, the model produces smaller forecasting errors. The empirical findings shed new light on the spillover effect from regional and global factors to local market volatility. Despite the common perception of increased globalization, the paper finds that volatility in Asia is primarily driven by local factors. During the period January 2005 to April 2010, regional and global factors explain 2%–3% of the volatility in the next 10 days for Asian emerging markets, and 3%–6% for Asian developed markets. There was no significant increase in the contribution of global factors to local market volatility.

Suggested Citation

  • Jianxin Wang, 2011. "Forecasting Volatility in Asian Stock Markets: Contributions of Local, Regional, and Global Factors," Asian Development Review (ADR), World Scientific Publishing Co. Pte. Ltd., vol. 28(02), pages 32-57, December.
    • Handle: RePEc:wsi:adrxxx:v:28:y:2011:i:02:n:s0116110511500090
    DOI: 10.1142/S0116110511500090
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    Cited by:

    1. Malik Shahzad Shabbir & Laila Refiana Said & Irem Pelit & Esma Irmak, 2023. "The Dynamic Relationship among Domestic Stock Returns Volatility, Oil Prices, Exchange Rate and Macroeconomic Factors of Investment," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 560-565, May.

    More about this item

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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