Volatility spillover effects from Japan and the US to the Pacific–Basin

Abstract

This study examines the magnitude and changing nature of volatility spillovers from Japan and the US to six Pacific–Basin equity markets. I construct a volatility spillover model which allows the unexpected return of any particular Pacific–Basin market be driven by a local idiosyncratic shock, a regional shock from Japan and a global shock from the US. I find that over and above the impact of the world factors, there are significant spillovers from the region to many of the Pacific–Basin countries. Liberalization events (such as capital market reform and country fund launching), exchange rate changes, number of DR listings, sizes of trade, and country fund premium are shown to affect the relative importance of the world and regional market factors over time.