Eun-Yun-Kang

Eun-Yun-Kang - Financial crisis and volatility spillovers...

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1 Financial crisis and volatility spillovers among Asian emerging stock markets * Sang Hoon Kang ∙ Yea Won Eun ∙ Seong-Min Yoon § Abstract This study investigates the volatility spillover effects between the Chinese stock market and four Asian emerging stock markets (Hong Kong, Korea, Singapore and Taiwan). It also examines how the global financial crisis of 2008 affects the volatility transmission among Asian stock markets. From estimation results using a bivariate GARCH model, we found that strong volatility linkages between the Chinese market and the other Asian emerging markets have come into existence after the global financial crisis. This finding indicates that stock market integration in Asian region has been more intensified after the crisis and that the Chinese stock market has become a more important information source among the Asian emerging markets. Thus, international investors need to consider this strong integration of the markets, because these intensified linkages reduce potential gains from international portfolio diversification. JEL Classification: C32; C58; G11; G15; F36 Keywords: Bivariate GARCH-BEKK model, Global financial crisis, Stock market integration, Volatility spillover * This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2010-371-B00008). † Professor, Department of Business Administration, Pusan National University, Busan 609-735, Korea. E-mail: sanghoonkang@pusan.ac.kr. ‡ Graduate School Student, Department of Economics, Pusan National University, Busan 609-735, Korea. E-mail: e18823@naver.com. § Corresponding Author: Professor, Department of Economics, Pusan National University, Jangjeon2- Dong, Geumjeong-Gu, Busan 609-735, Korea, E-mail: smyoon@pusan.ac.kr, Tel.: +82-51-510-2557, Fax: +82-51- 581-3143.
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2 І. Introduction The issue of interdependence among national equity markets has attracted significant attention among researchers, especially in the wake of the October 1987 crash, which brought about correlated stock price movements across international stock markets (Kanas, 1998). Early research focused exclusively on the spillover of the first moment of stock prices among major stock markets (Eun and Shim, 1989; Jeon and von Furstenberg, 1990; Cumby, 1990). Recent academic interest has been directed to investigating interdependence of equity markets in terms of the conditional second moment of the distribution of returns, referring to the volatility spillover effect. The existence of volatility spillovers implies that one large shock increases the volatility not only in its own asset or market but also in other assets or markets as well. Volatility is often related to the rate of information flow (Ross, 1989). If information comes in clusters, asset returns or prices may exhibit volatility even if the market perfectly and instantaneously adjusts to the news. Thus, studying volatility spillover can enable us to understand how information is transmitted across equity markets.
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This note was uploaded on 10/09/2011 for the course 323 3232 taught by Professor 3232 during the Spring '11 term at Apex College.

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Eun-Yun-Kang - Financial crisis and volatility spillovers...

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