Abstract
The present study attempts to track the transmission of volatility across major international stock markets over a span of 20 years, which includes both crisis (contagion form) and non-crisis periods. It also investigates whether global transmission of volatility follows a pattern. The study uses bi-variate EGARCH model in order to capture spillover between a pair of stock markets and the estimation window is one year with a sliding frequency of one quarter. The results show that, there is a spillover of volatility between international stock markets at all times. Results also indicate that in almost all cases, the pattern of spillover is non-random. Finally, the study characterizes the spillover pattern between international stock markets using suitable theoretical distributions.
Highlights
The liberalization of capital markets has improved economic ties among countries through policy coordination and has promoted economic integration by means of trade and investments
We empirically examine the nature and pattern of volatility transmissions across international stock markets over a span of last 20 years
About 18% of cases show that changes in the direction of spillover between international stock markets are brought about by financial crisis
Summary
The liberalization of capital markets has improved economic ties among countries through policy coordination and has promoted economic integration by means of trade and investments. The crisis specific studies mainly focus on the examination of volatility spillover during financial crises, especially, during four major financial crises: the Black Monday stock market crisis of October, 1987; the Asian Crisis of 1997; the Subprime Crisis of 2007-2008 and the very recent Euro-zone Crisis of 2009-2012. The region based studies mainly focus on economic zones such as the European Union, the ASEAN countries and the Asia-Pacific region. It implies that shocks generated in one market, travel to other market(s) In this context, we empirically examine the nature and pattern of volatility transmissions across international stock markets over a span of last 20 years. The study empirically tests whether the volatility transmissions across international stock markets consistent over spatial and temporal dimensions especially in the wake of a financial crisis.
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