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Inter-Linkages Between Asian and U.S. Stock Market Returns: A Multivariate GARCH Analysis

In: Macroeconometric Methods

Author

Listed:
  • Pami Dua

    (Department of Economics, Delhi School of Economics)

  • Divya Tuteja

    (Indian Institute of Foreign Trade)

Abstract

This chapter investigates inter-linkages of the Asian stock markets, viz. China, Hong Kong, India, Japan and Singapore with the U.S. stock market. The objective is to discern the impact of the global financial crisis and the Eurozone debt crisis on the linkages across these equity markets. In order to identify the crisis periods, we utilize the timeline given by the respective U.S. and Eurozone specific Markov-switching vector autoregressive models. The sample under study is from June, 2000 to December, 2019, and the data is at weekly frequency. We employ multivariate GARCH (generalized autoregressive conditional heteroscedasticity) models, viz. GARCH-CCC, GARCH-DCC and GARCH-EWMA, to estimate the time-varying conditional correlation among the stock market pairs. Finally, crisis periods identified by the Markov-switching models are used as dummy variables and regressed on the conditional correlation coefficients obtained from the multivariate GARCH models to test for contagion effects. We test for the existence of contagion effects among international stock markets during both the crises by utilizing ordinary least squares (OLS). The results suggest that there were significant contagion effects among the stock markets at play during the crisis episodes.

Suggested Citation

  • Pami Dua & Divya Tuteja, 2023. "Inter-Linkages Between Asian and U.S. Stock Market Returns: A Multivariate GARCH Analysis," Springer Books, in: Pami Dua (ed.), Macroeconometric Methods, chapter 0, pages 339-376, Springer.
    • Handle: RePEc:spr:sprchp:978-981-19-7592-9_12
    DOI: 10.1007/978-981-19-7592-9_12
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    Keywords

    Stock markets; Multivariate GARCH-DCC; Global financial crisis; Eurozone debt crisis; Contagion; Asia; US;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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