Information bias and its spillover effect on return volatility: A study on stock markets in the Asia-Pacific region

Abstract

The objective of this study was to investigate the evidence of information bias and its spillover effects on the stock market returns of the Asia Pacific region. This study analyzed 12 stock market indices from the region using daily returns from Dec 6, 2000 to Dec 6, 2019, and the study period was divided into pre-crisis, post-crisis, and full sample periods. The spillover of random innovation shocks to the market returns of the Asia Pacific region was significantly greater during the post-crisis period than during the pre-crisis period. Shocks of negative innovations had a greater impact on the conditional volatility of the market returns than positive innovations. However, the intensity of the response to news shocks was very small in the Chinese and Hong Kong stock markets compared to the other stock markets in the region. We also found significant cross-mean spillover effects among most of the market returns of the region except among Hong Kong-China, Japan-Hong Kong, Taiwan-Jakarta, and between Korea-New Zealand. Compared with the post-crisis period, the highest pairwise directional return spillover was transmitted from Thailand to Indonesia and the Philippines, from Indonesia to the Philippines, and between Australia and New Zealand.