Information Versus Contagion: International Transmissions of the NASDAQ, JASDAQ and KOSDAQ Market Returns

Abstract

This study tests the hypotheses of information and contagion using the return series from SP500, NIKKEI225, KOSPI200, NASDAQ, JASDAQ, and KOSDAQ index. We conjecture that the information related to the present value of growth opportunities (PVGO) incur different degree of co-movement of stock prices, while contagion produces no distinctive difference in the degree of co-movement in the sock price between national stock exchanges and OTC markets. We also add Korea markets to test the hypothesis that emerging markets are more vulnerable to contagion suggested by Kodres and Pritsker (2002). This study is the first to report the co-movements of the OTC markets. The results indicate that SP500 index returns have predictive power over both NIKKEI225 and KOSPI200 index returns only before the 1997 Korean currency crisis period. NASDAQ index returns have significant predictive power over both JASDAQ and KOSDAQ index returns both before and after the 1997 Korean currency crisis. We claim that the results tend to support the information hypothesis that investors both in Japan and Korea OTC markets infer information on the value changes from the NASDAQ market movements.