Cross-border transmission of stock price volatility: evidence from the overlapping trading hours

Using high-frequency (5-minute returns) data, the transmission pattern of intraday volatility among three international stock markets (i.e., the United States, the United Kingdom, and Canada) during their overlapping trading hours (9:30–11:30 a.m. New York time). The major findings are as follows. First, the conditional variance of a domestic market is affected not only by the volatility surprises of its own market, but also by those of foreign markets. This finding holds for the United States as well as for Canada and the United Kingdom, implying that the information contained in the volatility surprises of each national market is clearly transmitted to other national markets. The volatility spillover is not unidirectional. Second, the magnitude of volatility spillover does not decrease monotonically as the lag length increases, indicating that the effect of a foreign volatility shock on the conditional variance of the domestic market tends to persist.     

Impact of COVID-19 on stock market efficiency: Evidence from developed countries

This study investigates the impact of the novel coronavirus (COVID-19) pandemic on stock market efficiency for six hard-hit developed countries, namely, the United States (US), Spain, the United Kingdom (UK), Italy, France, and Germany. Applying the wild bootstrap automatic variance ratio test on daily stock market data from July 29, 2019 to January 25, 2021, it is found that all stock markets used in this study deviate from market efficiency during some periods of the pandemic. Deviations from market efficiency are seen more in the stock markets of the US and UK during the COVID-19 outbreak than in other stock markets. These results are strengthened when a different econometric method, the automatic portmanteau test, is used. The findings of this study indicate an increasing chance for stock price predictions and abnormal returns during the COVID-19 pandemic.     

Does the US-China trade war affect co-movements between US and Chinese stock markets?

This paper investigates the impact of the US-China Trade War on co-movements between US and Chinese stock markets. It particularly examines the time-varying stock market co-movement between the United States and China at market level, as well as at sector level, over the period from 3rd January 2017 to 23rd January 2020. The ‘event study’ analysis is employed to investigate the effect of US-China trade disputes news on co-movement dynamics, and the news announcement effects before and after the official start of the US-China Trade War (regarded as 6th July 2018) are examined separately in light of this phenomenon. We also identify structural breaks and spillover patterns of cross-market co-movements during different phases. The results indicate that co-movements amongst mainland China, Hong Kong and US stock markets are positively affected by news releases and, after 6th July 2018, are enhanced significantly. More precisely, there is also empirical evidence of positive announcement effects in stock market co-movements between the US and mainland China in specific sectors (particularly, Industrials and Information Technology). For international investors, this evidence suggests that the US-China Trade War has reduced the benefit of portfolio diversification in managing risk.     

MEAN AND VOLATILITY SPILLOVERS ACROSS MAJOR NATIONAL STOCK MARKETS: FURTHER EMPIRICAL EVIDENCE

This paper provides additional insight into the nature and degree of interdependence of stock markets of the United States, Japan, the United Kingdom, Canada, and Germany, and it reports the extent to which volatility in these markets influences expected returns. The analysis uses the multivariate GARCH-M model. Although they are considered weak, statistically significant mean spillovers radiate from stock markets of the U.S. to the U.K., Canada, and Germany, and then from the stock markets of Japan to Germany. No relation is found between conditional market volatility and expected returns. Strong time-varying conditional volatility exists in the return series of all markets. The own-volatility spillovers in the U.K. and Canadian markets are insignificant, supporting the view that conditional volatility of returns in these markets is “imported” from abroad, specifically from the U.S. Significant volatility spillovers radiate from the U.S. stock market to all four stock markets, from the U.K. stock market to the Canadian stock market, and from the German stock market to the Japanese stock market. The results are robust and no changes occur in the correlation structure of returns over time.     

Spillover and Cojumps Between the U.S. and Chinese Stock Markets

There is an urgent need to understand the spillover and cojump effects between the U.S. and Chinese stock markets. The paper finds that since July 2005, the U.S. stock market has caused short-run spillover effects on returns on the Chinese stock market. More specifically, price changes in the United States can be used to predict both closing-to-opening and closing-to-closing returns on the Chinese stock market on the next day. However, there is no significant volatility spillover between the two markets. Both markets have shown stronger cojump behavior since the subprime crisis. The return relationships between the two stock markets are robust.     

‘Slow-burn’ spillover and ‘fast and furious’ contagion: a study of international stock markets

‘Fast and furious’ contagion across capital markets is an important phenomenon in an increasingly integrated financial world. Different from ‘slow-burn’ spillover or interdependence among these markets, ‘fast and furious’ contagion can occur instantly. To investigate this kind of contagion from the US, Japan and Hong Kong to other Asian economies, we design a research strategy to capture fundamental interdependence, or ‘slow-burn’ spillover, among these stock markets as well as short-term departures from this interdependence. Based on these departures, we propose a new contagion measure which reveals how one market responds over time to a shock in another market. We also propose international portfolio analysis for contagion via variance decomposition from the portfolio manager’s perspective. Using this research strategy, we find that the US stock market was cointegrated with the Asian stock markets during four specific periods from 3 July 1997 to 30 April 2014. Beyond this fundamental interdependence, the shocks from both Japan and Hong Kong have significant ‘fast and furious’ contagion effects on other Asian stock markets during the US subprime crisis, but the shocks from the US have no such effects.     

An Empirical Examination of the Dissemination of Equity Price Innovations Between the Emerging Markets of Nordic-Baltic States and Major Advanced Markets

: We employ three econometric models to examine the relative influence of the stock markets of the United States, the United Kingdom, France, and Germany on the stock markets of the Nordic-Baltic states. The results show that the Nordic-Baltic markets respond to price innovations from the United States, the United Kingdom, France, and Germany in diverse ways in the period 2001–2013. Response patterns for Finland, Norway, Sweden, Iceland, and Denmark are more significant to market innovations from the United States, the United Kingdom, and France, and less significant to those from Germany. German influence is more significant over Latvia, Lithuania, and Estonia than the rest of the advanced markets. While the dynamics of the Nordic-Baltic markets exhibit a dominance of own price innovation, the influence of the United States is stronger than that of France, the United Kingdom, and Germany. These results imply that investors from the Nordic States may derive greater benefits by diversifying into Germany and vice versa, rather than diversifying into the United States, the United Kingdom, or France. Investors from the Baltic States may obtain greater advantages by adopting portfolio strategies that take advantage of potentially better diversification benefits obtainable from the United States, the United Kingdom, and France rather than from Germany, and the reverse will also be in order.     

How does economic policy uncertainty affect the bitcoin market?

This paper examines how economic policy uncertainty (EPU) impacts the Bitcoin (BTC) markets denominated in local currencies. We take BTC against British Pound (GBP) and the United States dollar (USD) as examples and construct the value-weighted BTC/GBP and BTC/USD composite indices. Our results show that the returns around the highest EPU days are significantly greater than those around the lowest EPU days. Further, the United States (US) EPU increases the volatility and trading volume of BTC after EPU spike days, whereas the United Kingdom (UK) EPU does not show such trends. Moreover, we observe a spillover effect for the US EPU to the UK BTC market. We further construct the dynamic conditional correlation (DCC)-GARCH model to test the dynamic correlation between EPU and BTC. Our results show that the effect of the US EPU on BTC/USD is greater than the effect of the UK EPU on BTC/GBP. Our empirical findings may provide insights for regulators to intervene in speculations in cryptocurrency markets effectively.     

Capture the contagion network of bitcoin – Evidence from pre and mid COVID-19

COVID-19 is the first global scale crisis since the inception of Bitcoin. We compare the contagion phenomenon of Bitcoin and other financial markets or assets pre and during the COVID-19 shock in both contemporaneous and non-contemporaneous manner. This paper uses the directed acyclic graph (DAG), spillover index, and network topology to provide strong evidence on the directional contagion outcomes of Bitcoin and other assets. The empirical results show that the contagion effect between Bitcoin and developed markets is strengthened during the COVID-19 crisis. Particularly, European market has a dominant role. Excluding Bitcoin’s own shocks, United State and European markets are the main contagion sources to Bitcoin. European market also works as a intermediary to deliver infectious from United State and market fear. The findings show that gold always has contagion effect with Bitcoin, while gold, US dollar and bond market are the contagion receivers of Bitcoin under the shock of COVID-19. The empirical results further proved the safe haven, hedge and diversifier potential of Bitcoin in economic stable time, but also shows that the sustainability of these properties is undermined during the market turmoil.     

Extreme Correlation of Stock and Bond Futures Markets: International Evidence

This study explores time‐varying extreme correlation of stock–bond futures markets in three major developed countries. In the United States and the United Kingdom, there is evidence of positive extreme stock–bond correlation when both futures markets are extremely bullish or bearish. In Germany, stock–bond futures extreme correlation is negative, suggesting the most diversification potentials of bond futures when German stock index futures market plunges. Macroeconomic news, the business cycle, and the stock market uncertainty all significantly affect the median stock–bond futures correlation. However, only the stock market uncertainty still significantly affects the extreme stock–bond futures correlation when the stock market is extremely bearish.     

Volatility spillovers between oil prices and the stock market under structural breaks

This paper employs univariate and bivariate GARCH models to examine the volatility of oil prices and US stock market prices incorporating structural breaks using daily data from July 1, 1996 to June 30, 2013. We endogenously detect structural breaks using an iterated algorithm and incorporate this information in GARCH models to correctly estimate the volatility dynamics. We find no volatility spillover between oil prices and US stock market when structural breaks in variance are ignored in the model. However, after accounting for structural breaks in the model, we find strong volatility spillover between the two markets. We compute optimal portfolio weights and dynamic risk minimizing hedge ratios to highlight the significance of our empirical results which underscores the serious consequences of ignoring these structural breaks. Our findings are consistent with the notion of cross-market hedging and sharing of common information by financial market participants in these markets.     

Causality and cointegration of stock markets among the United States,Japan and the South China Growth Triangle

This paper explores the causality and cointegration relationships among the stock markets of the United States, Japan and the South China Growth Triangle (SCGT) region. Applying the recently advanced unit root and cointegration techniques that allow for structural breaks over the sample period (October 2, 1992 to June 30, 1997), we find that there exists no cointegration among these markets except for that between Shanghai and Shenzhen. By invoking the Granger causality test and considering the non-synchronous trading problem, we will show that stock price changes in the US have more impact on SCGT markets than do those of Japan. More specifically, price changes in the US can be used to predict those of the Hong Kong and Taiwan markets on next day. Similarly, price changes on the Hong Kong stock market lead the Taiwan market by 1 day. Furthermore, the stock returns of the US and Hong Kong markets are found to be contemporaneous. Finally, there is a significant feedback relationship between the Shanghai and the Shenzhen Stock Exchanges.     

Government Bond Market Seasonality, Diversification, and Cointegration: International Evidence

Using government bond market data for the United States, Canada, the United Kingdom, Germany, France, and Japan, I investigate several hypotheses. Market efficiency is investigated by testing for seasonality and cointegration. The seasonality results are mixed. In regression tests, a January effect is detected in several markets (United States, Germany, France, United Kingdom, and Canada) using local currencies. However, in a nonparametric test, the January effect is supported only for France. When U.S. dollar returns are used, regression results also reveal a January effect for several markets (United States, Germany, France, and United Kingdom). These results are not confirmed by a nonparametric test. Correlation analysis shows considerable diversification opportunities for short‐term investors. Cointegration tests indicate that several of the markets share cointegrating vectors, increasing the possibilities of using other endogenous bond markets to better predict movements in a particular market.     

Dynamic spillovers between uncertainties and green bond markets in the US,Europe, and China: Evidence from the quantile VAR framework

This paper investigates the quantile connectedness between uncertainties and green bonds in the US, Europe, and China by using a quantile VAR model-based connectedness approach. The empirical findings suggest that the spillover effect under extreme market conditions is significantly higher than that under normal market conditions. We also show that stock market uncertainty (VIX) and oil market uncertainty (OVX) have a greater impact on green bonds, especially in extreme upward markets. In addition, the US is the dominant transmitter of spillovers in other green bond markets, while China is always the net receiver of spillovers. Further research, meanwhile, demonstrates that the connectedness between green bonds and uncertainties is time-varying and that the spillover effects at extreme upper and lower quantiles are asymmetric and heterogeneous, especially in the early days of the COVID-19 pandemic. These findings provide investors and policymakers with systematic insights into the risk resistance of different green bond markets.     

Is There a Size Effect in the Pricing of Stocks in the Chinese Stock Markets?: The Case of Bull Versus Bear Markets

Size effect studies generally suggest that a return premium exists for small firms. While the size effect has mostly disappeared in recent years in mature markets (e.g., US and UK), it remains mostly strong in developing markets. The purpose of this paper is to examine the relationship between firm size and excess stock returns in the Chinese stock markets, and to examine this effect in both a bull and bear market. No studies have previously examined these relationships in the Chinese markets. The results of the study indicate that a size effect exists in the Chinese stock markets over the 6-year period from 1998 to 2003. We find small firms have significantly greater excess returns than large firms. Moreover, small firms are found to have a stronger reaction to the direction of the market than large firms. Small firms have significantly greater positive excess returns than large firms during the bull market. However, small firms have significantly greater negative returns (using total market value), or no significant difference in returns (using float market value) during the bear market period.     

Does sovereign debt ratings news spill over to international stock markets?

The evidence here indicates that sovereign debt rating and credit outlook changes of one country have an asymmetric and economically significant effect on the stock market returns of other countries over 1989–2003. There is a negative reaction of 51 basis points (two-day return spread vis-á-vis the US) to a credit ratings downgrade of one notch in a common information spillover around the world. Upgrades, however, have no significant impact on return spreads of countries abroad. Closeness (e.g., geographic proximity) and emerging market status amplify the effect of a spillover. Downgrade spillover effects at the industry level are more pronounced in traded goods and small industries.     

沪深300股指期货与现货市场的非线性信息溢出与价格发现功能研究

采用线性与非线性Granger因果检验、协整检验和VECM模型,研究了沪深300股指期货和现货市场的线性与非线性信息溢出,并检验了期货市场的价格发现功能发挥情况。研究结果显示:线性信息溢出方面,沪深300股指期货市场对现货市场只有线性均值信息溢出,现货市场对期货市场只存在线性方差信息溢出;非线性信息溢出方面,两个市场之间不存在非线性均值信息溢出,不过二者之间存在显著的非线性方差信息溢出;沪深300股指期、现货市场之间存在着长期均衡的关系,不过不同于成熟市场中期货市场在价格发现方面居于主导地位的结论,我国股指现货市场在价格发现方面占主导地位,而期货市场处于从属地位。     

Volatility spillovers between oil prices and stock sector returns: Implications for portfolio management

In this article we take a recent generalized VAR-GARCH approach to examine the extent of volatility transmission between oil and stock markets in Europe and the United States at the sector-level. The empirical model is advantageous in that it typically allows simultaneous shock transmission in the conditional returns and volatilities. Insofar as volatility transmission across oil and stock sector markets is a crucial element for portfolio designs and risk management, we also analyze the optimal weights and hedge ratios for oil-stock portfolio holdings with respect to the results. Our findings point to the existence of significant volatility spillover between oil and sector stock returns. However, the spillover is usually unidirectional from oil markets to stock markets in Europe, but bidirectional in the United States. Our back-testing procedures, finally, suggest that taking the cross-market volatility spillovers estimated from the VAR-GARCH models often leads to diversification benefits and hedging effectiveness better than those of commonly used multivariate volatility models such as the CCC-GARCH of Bollerslev (1990), the diagonal BEKK-GARCH of Engle and Kroner (1995) and the DCC-GARCH of Engle (2002).     

Returns and volatility spillover in the European banking industry during global financial crisis: Flight to perceived quality or contagion?

This paper empirically investigates return, volatility and leverage spillover effects between banking industrial stock markets of the major economies (ME) (Germany, UK and US) and the smaller stressed European Union countries (SE), (Italy, Ireland, Greece, Spain and Portugal) from 2002 to 2014 which includes the global financial crisis period (2007–2014). Thus the paper investigates the influence of the global crisis on the spillover between the banking industrial stock markets of Europe and the US. We apply a multivariate GARCH–GJR framework to investigate the effects of the financial crisis with respect to spillover. Our results indicate an increase in both means and volatility spillover between the major economies and the stressed EU economies from the pre-crisis to the crisis period. During the pre-crisis period there is ample evidence of spillover from Germany, UK and the US to the smaller EU economies. Little evidence of a significant spillover from the smaller economies to the major economies is found during this period. We find that return and volatility transmission mechanisms between the major economies and the smaller EU countries are asymmetric during the crisis period. During the crisis, the level and amount of spillover from the major economies increase. But now there is also clear evidence of spillover from smaller EU economies to the major economies, this is especially true for Germany and the UK. Evidence of spillover effects suggests the existence of exploitable trading strategies and has important implications to investors in the areas of option pricing, portfolio optimization and risk management.     

国际商品市场与股票市场的溢出效应——基于中美数据的VAR-MGARCH分析

基于VAR-MGARCH-BEKK模型,对国际商品市场与中美股票市场之间的均值与波动溢出效应进行了经验分析。结果表明,国际商品市场与中美股票市场之间存在着相互的均值溢出效应,国际商品市场对中美股票市场存在波动溢出效应,同时,美国股票市场对国际商品市场存在波动溢出效应;另外,中国应该尽快编制科学合理并适合自身国情的商品指数。