Abstract
The transmission mechanism of price and volatility spillovers across the New York, Tokyo and London stock markets is investigated. The asymmetric impact of good news (market advances) and bad news (market declines) on volatility transmission is described by an extended multivariate Exponential Generalized Autoregressive Conditionally Heteroskedastic (EGARCH) model. Using daily open-to-close returns, we find strong evidence that volatility spillovers in a given market are much more pronounced when the news arriving from the last market to trade is bad. A before and after October 1987 crash analysis reveals that the linkages and interactions among the three markets have increased substantially in the post-crash era, suggesting that national markets have grown more interdependent.
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