Information Transmission in Post-recession Era: Evidence from India, China, Hong Kong and Japan

Abstract

The study proposes to investigate lead lag relationship in price discovery, volatility spillover and leverage effect in stock exchanges of four Asian economies namely India, China, Hong Kong and Japan. Data comprises of daily closing values of the indices Hang Seng Composite for Hong Kong, Nikkei for Japan, Shanghai Composite Index for China and Sensex for India. Johansson Co-integration Test, VEC model, Granger Causality Test, ARCH LM test and EGARCH model have been employed to examine and explore price discovery, volatility behavior and leverage effect from one country to another. In post crisis period India is co-integrated with China but is not integrated with Hong Kong and Japan. China is co-integrated with Hong Kong but not with Japan. Hong Kong and Japan are co integrated with each other. India leads China in price discovery process. Hong Kong leads China and Japan in price discovery process. Volatility spillovers have been found among these Asian countries in post-recession era. Leverage effect is observed among all market pairs except for Hong Kong and China. The study further shows that good news information transmission generates less volatility for stock markets of India, Hong Kong and Japan but on the contrary it generates more volatility for stock markets of China. The research contributes to existing literature on lead lag relationship in price discovery, volatility spillovers, leverage effect in stock markets, and is one of the very few studies conducted for select Asian countries.