Return volatility of Asian stock exchanges; a GARCH DCC analysis with reference of Bitcoin and global crude oil price movement

Abstract

PurposeThis study aims to investigate the conditional volatility of the Asian stock market concerning Bitcoin and global crude oil price movement.Design/methodology/approachThis study uses the newest Dynamic Conditional Correlation (DCC)-Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model to examine the conditional volatility of the stock market for Bitcoin and crude oil prices in the Asian perspective. The sample stock market includes Chinese, Indian, Japanese, Malaysian, Pakistani, Singaporean, South Korean and Turkish stock exchanges, with daily time series data ranging from 4 April 2015−31 July 2023.FindingsThe outcome reveals the presence of volatility clustering on the return series of crude oil, Bitcoin and all selected stock exchanges of the current study. Secondly, the outcome of DCC, manifests that there is no short-run volatility spillover from crude oil to the Malaysian, Pakistani and South Korean and Turkish stock markets, whereas Chinese, Indian, Japanese, Singapore stock exchanges show the short-run volatility spillover from crude oil in the short run. On the other hand, in the long run, there is a volatility spillover effect from crude oil to all the stock exchanges. Thirdly, the findings suggest that there is no immediate spillover of volatility from Bitcoin to the stock markets return volatility of China, India, Malaysia, Pakistan, South Korea and Singapore. In contrast, both the Japanese and Turkish stock exchanges exhibit a short-term volatility spillover from Bitcoin. In the long term, a volatility spillover effect from Bitcoin is observed in all stock exchanges except for Malaysia. Lastly, based on the outcome of conditional variance, it can be concluded that there was increase in the return volatility of stock exchanges during the period of the COVID-19 pandemic.Research limitations/implicationsThe analysis below does not account for the bias induced due to certain small sample properties of DCC-GARCH model. There exists a huge literature that suggests other methodologies for small sample corrections such as the DCC connectedness approach. On the other hand, decisive corollaries of the conclusions drawn above have been made purely based on a comprehensive investigation of eight Asian stock exchange economies. However, there is scope for inclusive examination by considering other Nordic and Western financial markets with panel data approach to get more robust inferences about the reality.Originality/valueMost of the empirical analysis in this perspective skewed towards the Nordic and Western countries. In addition to that many empirical investigations examine either the impact of crude oil price movement or Bitcoin performance on the stock market return volatility. However, none of the examinations quests the crude oil and Bitcoin together to unearth their implication on the stock market return volatility in a single study, especially in the Asian context. Hence, current investigation endeavours to examine the ramifications of Bitcoin and crude oil price movement on the stock market return volatility from an Asian perspective, which has significant implications for the investors of the Asian financial market.