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    Volatility Contagion across the Equity Markets of Developed and Emerging Market Economies

    Hattori, Masazumi; Shim, Ilhyock; Sugihara, Yoshihiko | July 2016
    Abstract
    Using variance risk premiums (VRPs) nonparametrically calculated from equity markets in selected major developed economies and emerging market economies (EMEs) over 2007?2015, we document the correlation of VRPs across the markets and examine whether equity fund flows work as a path through which VRPs spill over globally. First, we find that VRPs tend to spike up during market turmoil such as the peak of the global financial crisis and the European debt crisis. Second, we find that all cross-equity market correlations of VRPs are positive, and that some economy pairs exhibit high levels of the correlation. In terms of volatility contagion, we find that an increase in VRPs in the United States significantly reduces equity fund flows to other developed economies, but not those to EMEs, in the period after the global financial crisis. Two-stage least squares estimation results show that equity fund flows are a channel for spillover of VRPs in the United States to VRPs in other developed economies.
    Citation
    Hattori, Masazumi; Shim, Ilhyock; Sugihara, Yoshihiko. 2016. Volatility Contagion across the Equity Markets of Developed and Emerging Market Economies. © Asian Development Bank Institute. http://hdl.handle.net/11540/6627.
    Keywords
    International Financial Market
    Multilateral Financial Institutions
    Economic Recession
    Market
    Crisis
    Economic indicators
    Growth models
    Gross domestic product
    Macroeconomics
    Economic forecast
    Financial Stability
    Financial Management System
    Financial Restructuring
    Capital Market Development
    Erosion
    Market Development
    Economics
    Erosion
    International Economics
    Macroeconomic
    Macroeconomic Analysis
    Performance Evaluation
    Impact Evaluation
    Business recessions
    Multilateral development banks
    Regulatory reform
    Capital
    Exports
    Economic development projects
    Economic policy
    Economic forecasting
    Show allCollapse
    Citable URI
    http://hdl.handle.net/11540/6627
    Metadata
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    adbi-wp590.pdf (1.055Mb)
    Author
    Hattori, Masazumi
    Shim, Ilhyock
    Sugihara, Yoshihiko
    Theme
    Finance
    Economics

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    Copyright 2016-2021 Asian Development Bank Institute, except as explicitly marked otherwise