Domestic and international leverage effects of major Asian stock markets based on stochastic volatility models

Abstract

This paper investigates daily stock market volatility in major Asian stock indices utilizing stochastic volatility models. The empirical results reveal interesting phenomenon: first, volatility of every index has a significant persistency and an asymmetric domestic leverage effect; namely, the responses of volatility to its own positive return shocks are different from the responses to negative return shocks. Second, there is a significant international leverage effect between some Asian stock indices and the NASDAQ index; that is, negative return shocks of the NASDAQ index have a significant influence on increasing volatilities of these Asian indices.