Abstract
Given Asian market recognition at the forefront of the investment domain, the research examines volatility spillover and asymmetric transmission between emerging and frontier stock markets of Asia. Stock returns of two frontier and nine emerging markets, during the data period spanning from August 2000 to March 2020, were analyzed using multivariate asymmetric GARCH-BEKK model around the global financial crisis (GFC). The study results suggest that the structure of cross-markets shocks and volatility spillover between emerging markets are higher during post-GFC. Therefore, this diminishes the possibility of portfolio diversification and investment opportunities to the investors in most of the Asian emerging markets. In the case of Asian frontier markets, most of the volatility generates due to its past shocks and volatility traverse from Asian emerging markets are considerably less. Hence, asset allocations prospects exist in the Asian frontier stock markets. Nevertheless, safe investment strategies need to design to reap diversification benefits from these markets, particularly during financial turmoil and market distress in the future.
Highlights
The Asian stock markets across the world are preferred to be an attractive destination place for global investors to channelize their investment and grab the international portfolio diversification benefits
The study results suggest that the structure of cross-markets shocks and volatility spillover between emerging markets are higher during post-global financial crisis (GFC)
The analysis results suggest a drastic change in volatility traverse between Asian emerging and frontier stock markets around the GFC
Summary
The Asian stock markets across the world are preferred to be an attractive destination place for global investors to channelize their investment and grab the international portfolio diversification benefits. Any events, crises, and other structural imbalances in one economy emanate rapidly in other economies Due to such strong integration and linkages, various information transmission channels enhanced the volatility across the markets. Given this backdrop, this research examines the volatility spillover and asymmetric transmission between Asian emerging and frontier stock markets. The entire outline of the research addresses the following questions: a) Whether Asian emerging and frontier stock markets behaviors are different towards volatility spillover during pre- and post-global financial crisis?. B) Whether markets are prospective for portfolio diversification and investment opportunities after the global financial crisis?
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