Measuring Returns and Volatility Spillovers in US, UK and Selected Asian Equity Markets
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Date
2016-08-29
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UMT,Lahore
Abstract
To know aboutvolatility in stock markets is very important to determine the capital cost and have rational decisions of as volatility means risk associated with investments. Significantdeviations in volatility of financial markets may have negative effects on the investment return and profits. This study examines the pattern of volatility, the behavior of return and volatility spillovers across US, UK and some other selected Asian Equity markets; India, Hong Kong, China, Indonesia, Malaysia, Korea, Sri Lanka and Pakistan for the period of January 2000 to December 2015. ARCH and Modified ARCH models were used to test the existence of calendar anomalies in terms of effect of day of the week on both variances (volatility/risk) and mean (returns) equations. Diebold and Yilmaz (2012) Spillover Index methodology based on forecast error variance decomposition based on VAR model was used to investigate spillover effects. Empirical results found that: 1) significant evidence about the existence of day of the week effects in both volatility and return equations, 2) statistically different volatility pattern across days of the week, 3) integration exists and vary across financial markets with highest correlation and integration between India and US, 4) evidence of bidirectional return spillovers between UK and Korea, and among Indonesia and US stock markets, 5) bidirectional volatility spillover among US and UK, Korea and India, UK and India, and India and Malaysia, and 6) moderate cross market volatility transmissions and shocks between the financial markets due to their interconnectedness .