Structural Breaks and Volatility Spillover in South Asian Economies
Article Sidebar
Main Article Content
Abstract
Purpose - This study examines the volatility spillovers in the presence of structural breaks with specific reference to South Asian Capital markets. The global financial crisis of 2007-2009 has compelled policymakers to realize that financial instability has the potential to threaten economic stability and growth; therefore, managing the financial crisis is inevitable. To manage the impact of financial crises, understanding the dynamics of volatility spillover across various markets is imperative. This study has investigated the possible emergence of structural breaks in risk patterns after global financial crises in south Asian markets.
Methodology - Using the data from July 2002 to June 2016, employing the Exponential GARCH methodology.
Findings - This study finds a significant volatility spillover after the financial crisis of 2007-09. Therefore, the existence of a structural break in the risk pattern of south Asian capital markets cannot be fully rejected.
Policy Implications - This conclusion is of prime importance to policymakers in devising policy guidelines concerning financial crises.
Downloads
Article Details
Copyright (c) 2020 Hafiz Rauf Iqbal, Syed Kashif Saeed, Syed Zulfiqar Ali Shah
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abbas, Q., Khan, S., & Shah, S. Z. A. (2013). Volatility transmission in regional Asian stock markets. Emerging Markets Review, 66-77. DOI: https://doi.org/10.1016/j.ememar.2013.04.004
Aggarwal, R., Inclan, C., & Leal, R. (1999). Volatility in Emerging Stock Markets. The Journal of Financial and Quantitative Analysis, 33-55. DOI: https://doi.org/10.2307/2676245
Arago, V., & Fernandez-Izquierdo, M. A. (2007). Influence of structural changes in transmission of information between stock markets: A European empirical study. Journal of Multinational Financial Management, 112-124. DOI: https://doi.org/10.1016/j.mulfin.2006.05.002
Baur, D. (2006). Multivariate market association and its extremes. International Financial Markets, Institutions & Money, 355-369. DOI: https://doi.org/10.1016/j.intfin.2005.05.006
Choudhry, T., & Jayasekera, R. (2014). Returns and volatility spillover in the European banking industry during global financial crisis: Flight to perceived quality or contagion? International Review of Financial Analysis, 36-45. DOI: https://doi.org/10.1016/j.irfa.2014.05.003
Claessens, S., & Forbes, K. J. (2001). International financial contagion. Boston ; London : Kluwer Academic Publishers, c2001. DOI: https://doi.org/10.1007/978-1-4757-3314-3
Claeys, P., & Vasicek, B. (2014). Measuring Bilateral Spillover and Testing Contagion on Sovereign Bond Markets in Europe. Journal of Banking and Finance. DOI: https://doi.org/10.1016/j.jbankfin.2014.05.011
Ewing, B. T., & Malik, F. (2005). Re-examining the asymmetric predictability of conditional variances: The role of sudden changes in variance. Journal of Banking & Finance, 2655-2673. DOI: https://doi.org/10.1016/j.jbankfin.2004.10.002
Habiba, U. E., Peilong, S., Hamid, K., & Shahzad, F. J. G. B. R. (2019). Stock Returns and Asymmetric Volatility Spillover Dynamics Between Asian Emerging Markets. 0972150919838433. DOI: https://doi.org/10.1177/0972150919838433
Hamao, Y., Masulis, R. W., & Ng, V. (1990). Correlations in Price Changes and Volatility across International Stock Markets. The Review of Financial Studies, 281-307. DOI: https://doi.org/10.1093/rfs/3.2.281
Hammoudeh, S., & Li, H. (2008). Sudden changes in volatility in emerging markets: The case of Gulf Arab stock markets. International Review of Financial Analysis, 47-63. DOI: https://doi.org/10.1016/j.irfa.2005.01.002
Hillebrand, E. (2005). Neglecting parameter changes in GARCH models. Journal of Econometrics, 121-138. DOI: https://doi.org/10.1016/j.jeconom.2004.09.005
Huang, P.-K. (2012). Volatility transmission across stock index futures when there are structural changes in return variance Applied Financial Economics, 1603-1613. DOI: https://doi.org/10.1080/09603107.2012.669459
Huo, R., & Ahmed, A. D. J. E. M. (2017). Return and volatility spillovers effects: Evaluating the impact of Shanghai-Hong Kong Stock Connect. 61, 260-272. DOI: https://doi.org/10.1016/j.econmod.2016.09.021
Hwang, J.-K., & Ogwu, A. (2016). Spillover effects of the 2008 financial crisis on NIE stock markets. Applied Economics Letters, 1261-1264. DOI: https://doi.org/10.1080/13504851.2016.1150939
Jebran, K., Chen, S., Ullah, I., & Mirza, S. S. (2017). Does volatility spillover among stock markets varies from normal to turbulent periods? Evidence from emerging markets of Asia. The Journal of Finance and Data Science, 3(1-4), 20-30. DOI: https://doi.org/10.1016/j.jfds.2017.06.001
Jebran, K., & Iqbal, A. (2016). Examining volatility spillover between Asian countries’ stock markets. China Finance Economic Review, 4(1), 6. DOI: https://doi.org/10.1186/s40589-016-0031-1
Jose Luis Miralles Marcelo, J. L. M. Q. a. M. d. M. M. Q. (2008). Asymmetric variance and spillover effects Regime shifts in the Spanish stock market. International Financial Markets, Institution and Money, 1-15. DOI: https://doi.org/10.1016/j.intfin.2006.05.004
Kang, S. H., Cho, H.-G., & Yoon, S.-M. (2009). Modeling sudden volatility changes: Evidence from Japanese and Korean stock markets. Physica A: Statistical Mechanics and its Applications, 3543-3550.
Lamoureux, C. G., & Lastrapes, W. D. (1990). Persistence in variance, structural change, and the GARCH model. Journal of Business and Economic Statistics, 225-234.
Lu Sui, L. S. (2016). Spillover effects between exchange rates and stock prices: Evidence from BRICS around the recent global financial crisis. Research in International Business and Finance, 459-471. DOI: https://doi.org/10.1016/j.ribaf.2015.10.011
Maderitsch, R., & Jung, R. (2014). Structural Breaks in Volatility Spillovers between International Financial Markets: Contagion or Mere Interdependence? Journal of Banking and Finance, 331-342. DOI: https://doi.org/10.1016/j.jbankfin.2013.12.023
Malik, F., & Hassan, S. A. (2004). Modeling volatility in sector index returns with GARCH models using an iterated algorithm. Journal of Economics and Finance, 211-225. DOI: https://doi.org/10.1007/BF02761612
Mcmillan, D. G., & Wohar, M. E. (2011). Structural breaks in volatility: the case of UK sector returns. Applied Financial Economics, 1079-1093. DOI: https://doi.org/10.1080/09603107.2011.564131
Miralles Marcelo, J. L., Quiros, J. L. M., & Quiros, M. d. M. M. (2008). Asymmetric variance and spillover effects: Regime shifts in the Spanish stock market. Journal of International Financial Markets, Institutions and Money, 1-15. DOI: https://doi.org/10.1016/j.intfin.2006.05.004
Mishkin, F. (1991). Anatomy of a Financial Crisis. Journal of Evolutionary Economics, 115-130.
Moore, P. W. a. T. (2009). Sudden changes in volatility: The case of five central European stock markets. International Financial Markets, Institutions and Money, 33-46.
Mulyadi, M. S. (2009). Volatility spillover in Indonesia, USA, and Japan Capital Market. MPRA Online at http://mpra.ub.uni-muenchen.de/16914/.
Natarajan, V. K., Singh, A. R. R., & Priya, N. C. (2014). Examining mean-volatility spillovers across national stock markets. Journal of Economics, Finance and Administrative Science, 55-62. DOI: https://doi.org/10.1016/j.jefas.2014.01.001
Nelson, D. B. (1991). Conditional Heteroskedasticity in Asset Returns: A New Approach. Econometrica, 347-370. DOI: https://doi.org/10.2307/2938260
Panayiotis Theodossiou, E. K., Gregory Koutrnos and Andreas Christofi. (1997). Volatility Reversion and Correlation Structure of Returns in Major International Stock Markets. The Financial Review, 205-224. DOI: https://doi.org/10.1111/j.1540-6288.1997.tb00422.x
Pettenuzzo, D., & Timmermann, A. (2011). Predictability of stock returns and asset allocation under structural breaks. Journal of Econometrics, 60-78. DOI: https://doi.org/10.1016/j.jeconom.2011.02.019
Saeed, S. K., Riaz, K., & Ayub, U. (2013). Financial Contagion in South Asia: An EGARCH Approach. American Journal of Scientific Research, 105-111. DOI: https://doi.org/10.2139/ssrn.2241389
Wang, L. (2014). Who moves East Asian stock markets? The role of the 2007–2009 global financial crisis. Journal of International Financial Markets, Institutions and Money, 182-203. DOI: https://doi.org/10.1016/j.intfin.2013.11.003