Structural Breaks and Volatility Spillover in South Asian Economies

https://doi.org/10.33215/sjom.v3i1.260

Authors

Keywords:

Financial Crisis, Volatility Spillover, Structural Breaks, Exponential Generalized Auto Regressive Heteroskedasticity (EGARCH)

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

Download data is not yet available.
Dimensions

Abbas, Q., Khan, S., & Shah, S. Z. A. (2013). Volatility transmission in regional Asian stock markets. Emerging Markets Review, 66-77.

Aggarwal, R., Inclan, C., & Leal, R. (1999). Volatility in Emerging Stock Markets. The Journal of Financial and Quantitative Analysis, 33-55.

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.

Baur, D. (2006). Multivariate market association and its extremes. International Financial Markets, Institutions & Money, 355-369.

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.

Claessens, S., & Forbes, K. J. (2001). International financial contagion. Boston ; London : Kluwer Academic Publishers, c2001.

Claeys, P., & Vasicek, B. (2014). Measuring Bilateral Spillover and Testing Contagion on Sovereign Bond Markets in Europe. Journal of Banking and Finance.

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.

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.

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.

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.

Hillebrand, E. (2005). Neglecting parameter changes in GARCH models. Journal of Econometrics, 121-138.

Huang, P.-K. (2012). Volatility transmission across stock index futures when there are structural changes in return variance Applied Financial Economics, 1603-1613.

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.

Hwang, J.-K., & Ogwu, A. (2016). Spillover effects of the 2008 financial crisis on NIE stock markets. Applied Economics Letters, 1261-1264.

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.

Jebran, K., & Iqbal, A. (2016). Examining volatility spillover between Asian countries’ stock markets. China Finance Economic Review, 4(1), 6.

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.

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.

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.

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.

Mcmillan, D. G., & Wohar, M. E. (2011). Structural breaks in volatility: the case of UK sector returns. Applied Financial Economics, 1079-1093.

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.

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.

Nelson, D. B. (1991). Conditional Heteroskedasticity in Asset Returns: A New Approach. Econometrica, 347-370.

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.

Pettenuzzo, D., & Timmermann, A. (2011). Predictability of stock returns and asset allocation under structural breaks. Journal of Econometrics, 60-78.

Saeed, S. K., Riaz, K., & Ayub, U. (2013). Financial Contagion in South Asia: An EGARCH Approach. American Journal of Scientific Research, 105-111.

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.

Published

2020-01-20

How to Cite

Iqbal, H. R., Saeed, S. K., & Shah, S. Z. A. (2020). Structural Breaks and Volatility Spillover in South Asian Economies. SEISENSE Journal of Management, 3(1), 64-77. https://doi.org/10.33215/sjom.v3i1.260