Impacts of China's crash on Asia-Pacific financial integration: Volatility interdependence,information transmission and market co-movement

This paper examines the price and volatility dynamics between China and major stock markets in the Asia-Pacific, investigating the effects of the Chinese stock market crash (2015–2016) for the first time. Employing the Bayesian VAR and BEKK GARCH, we observe that price and volatility spillover behaviours are different during the stable and stress periods. Particularly, price spillovers from China to other regional markets are more significant during a bullish period, showing that ‘good news’ emanating from China has strong impacts on its neighbours during better market condition. In the turbulent period, we observe strong shock spillover effects and enhanced volatility spillovers from China to most Asia-Pacific stock markets. This is because China, as an important trading partner and strategic financial centre shows to exert significant influence on the Asia-Pacific region through various economic channels. We also find that the Asia-Pacific stock markets spill over their shocks to China during the crisis, indicating that China is becoming more integrated with the regional financial markets.     

Spillover Effects of the 2008 Financial Crisis in Latin America Stock Markets

This paper examines the transmission of the 2008 US financial crisis to four Latin American stock markets using daily stock returns from 2006 to 2010, analyzing before, during and after the 2008 financial crisis. The empirical evidence presents a financial contagion by showing persistently higher and more volatile pair-wise conditional correlations during the crisis period. This indicates there are structural changes in mean and volatility of the correlation coefficients due to the 2008 financial crisis in Latin American markets. The results here could be useful in international portfolio diversification decision-making in Latin American region. In addition, the predicting the volatility in different markets could be a useful input for reducing financial instability in crisis episodes to policy makers.     

Spillover effects of the 2008 financial crisis on NIE stock markets

This article estimates dynamic conditional correlations of stock returns across countries by using DCC–GARCH model and analyse spillover effects of the 2008 financial crisis on the NIE’s stock markets. The results show that there is no regime shift in mean equation of the correlation coefficient during the financial crisis. It may imply there are no mean spillover effects of the US financial crisis on the NIE’s stock markets. However, there are volatility spillover effects of the financial crisis sparked in 2008 from the US to the NIE’s markets.     

Dynamic relationship between stock market trading volumes and investor fear gauges movements

This article applies multifractal detrended fluctuation analysis (MF-DFA) and multifractal detrended cross-correlation analysis (MF-DCCA) to investigate cross-correlation behaviours between two kinds of stock markets trading volumes and investor fear gauges covering the data of U.S. stock markets from 2 January 2004 to 31 July 2018. The empirical results show that the dynamic relationship between stock markets trading volume fluctuations and different kinds of investor fear gauges are multifractal and find that the dynamic relationship is strongly anti-persistent. Moreover, financial crisis in 2008 has a significant impact on the cross-correlated behaviour, suggesting that stock market trading volume fluctuations and investor fear gauges are more susceptible to each other during the financial crisis period. Through the rolling windows analysis, we also find that the stock markets trading volume fluctuations and different kinds of investor fear gauges are anti-persistent dynamic cross-correlated.     

The impact of subprime mortgage on correlation between stock and FX markets

Our researching period contains the American subprime mortgage crisis, an insignificant financial crisis and the Asian financial crisis periods. We analyse and compare the interrelations between the stock and Foreign Exchange (FX) markets in Taiwan by the daily data of stock prices and NTD/US exchange rates. The empirical results found that there is no effect on the long-term equilibrium between the stock and FX markets during the American subprime mortgage crisis. It also shows that, whether financial crisis occurs or not, there is no cointegration between the stock and FX markets. Furthermore, the results find that there exists bidirectional causality between the stock and FX markets among the American subprime mortgage crisis and the Asian financial crisis period. However, there is only unidirectional relationship from stock prices to exchange rates during insignificant financial crisis period. Such results imply that two financial crises do significantly affect the short-term interrelationships between the stock and FX markets and lead to more importance for the connection between two markets.     

Assessing downside and upside risk spillovers across conventional and socially responsible stock markets

Since the aftermath of the recent global financial crisis, socially responsible (SR) investments have become an alternative form of conventional finance, giving rise to further systemic risk between conventional and SR stock markets. In this paper, we assess this risk transmission using Value at Risk (VaR) modeling for the US, Europe and the Asia-Pacific region, over the period covering January 2004–December 2016. We find that socially responsible stock markets exhibit less risk than do conventional markets in terms of the risk hedging properties induced by the SR screening. Second, contributions to systemic risk vary across market phases and return distribution levels, with a larger contribution and spillover effect during the recent global financial crisis. For example, at the downside of the distribution (CoVaR at 5%), the conventional European index shows the highest contribution to the world market’s systemic risk, while the US stock market shows the highest contribution at the upside of the distribution (CoVaR at 95%). This finding is justified by the difference in the risk aversion of investors that varies with the market state as well as the disparities in the development of SR markets.     

美国次级房贷危机对中国房贷和金融市场的影响

美国次级房贷危机已对全球股市和美国经济产生较大影响。分析美国次级房贷危机产生的背景和原因,并指出中国的抵押贷款市场存在的重大风险。我们应该以美国次级债危机为借鉴,为中国房地产市场发展和金融市场的健康发展获得一些启示,并做好风险防范措施。     

Conditional heteroscedasticity with leverage effect in stock returns: Evidence from the Chinese stock market

In recent years the Chinese stock market has experienced an astonishing growth and unprecedented development, but is also viewed as one of the most volatile markets, which has been called by many observers a “casino”. This study intends to examine the presence of heteroskedasticity and the leverage effect in the Chinese stock markets, and to capture the dynamics of conditional correlation between returns of China's stock markets and those of the U.S. in a bivariate VC-MGARCH framework. The results show that the leverage effect is significant in these markets during the sample period in 2000–2013, and the conditional correlation between mainland China's and the U.S. stock markets is quite low and highly volatile. The Chinese stock markets are found to be highly regimes persistent. These findings have important implication for investors seeking opportunity of portfolio diversification.     

The asymmetric price adjustment between REIT and stock markets in Asia-Pacific markets

This paper applies the threshold error correction model to examine the relationship for real estate investment trusts (REITs) and stock, and their asymmetric adjustment behaviors in six Asian/Pacific financial markets: Australia, Japan, Singapore, Taiwan, Korea, and Hong Kong. Our results show that there has been long-term equilibrium in REIT and stock indices in most of these markets. To earn exceptional profits, it is recommended that investors can sell (buy) the REITs when the indices of REITs are lower (higher) than equilibrium in Australia, Singapore and Taiwan; on the other hand, they should sell (buy) when the REIT market goes up (down) in Hong Kong and Japan. A causality test revealed that previous information about stocks predicted changes in the REITs in all the Asian/Pacific markets. One can also find that the lead–lag relationships are significant. The threshold EC model predicts two-way causality under both the regimes for the financial markets in most countries during all the sample periods. In addition, the adjustment speeds for the stock indices are faster than that for the REIT indices as disequilibrium occurs. This paper also finds that the previous mentioned trading strategies generally remained the same during the period of sub-prime mortgage crisis. However, the threshold EC model predicts one-way causality for both the regimes for the financial markets in most countries during this crisis period. In addition, we also find that the severe shock in REIT markets led investors in Australia and Taiwan to be more conservative during this period. The REIT indices had more effect on stock indices after the sub-prime mortgage crisis. According to the empirical results, we can infer that the degree of market imbalance and the occurrence of the sub-prime mortgage crisis induce the changes in the investment behavior of market participants.     

Financial crises and dynamic linkages across international stock and currency markets

This paper investigates contagion across stock and currency markets of China, Eurozone, India, Japan and US during global financial crisis and Eurozone crisis. The crisis periods are selected using Markov-switching models for US and Eurozone markets. We, then, utilize the DCC-GARCH model to estimate conditional correlation among the assets and test for contagion/flight to quality effects during the crises. The results show significant contagion as well as flight to quality effects both across and within asset classes. We examine the impact of financial stress index on the correlation across markets and find that portfolio diversification benefits for equity markets may be non-existent.     

Trade and Investment Linkages and Stock Market Long‐Run Relationship

This paper aims to examine whether the intensity of trade and investment linkages among the countries matter for their stock market long‐run relationship. To achieve this, we classify Australia's bilateral trade and investment partners into major, medium and minor. Empirical findings of an asymmetric generalised dynamic conditional correlation generalised autoregressive conditional heteroskedasticity model show that correlations are time varying and increased significantly during the global financial crisis (GFC). Results of multivariate cointegration test confirm the long‐run equilibrium relationship between the stock markets of Australia and its major partners in the pre‐GFC and during GFC. Based on the full‐sample results, it indicates that the GFC has segmented the stock markets from the long‐run equilibrium relationship. Granger non‐causality test results on full sample show that Australian stock market causes only the New Zealand market while the USA, the UK, Germany, Canada, Switzerland and Italy drives the Australian market. Our results therefore suggest that the intensity of bilateral trade and investment linkages among the countries matter for their stock markets' long‐term relationship.     

Exogenous shocks,dynamic correlations,and portfolio risk management for the Asian emerging and other global developed and emerging stock markets

ABSTRACT

This study examines the potential influence of exogenous shocks on time-varying correlations and portfolio strategies between the Asian emerging and other global stock markets including developed and other emerging markets. Using the ARMA-cDCC-FIEGARCH model with and without exogenous shocks, our results highlight the usefulness of including other global stock assets in the traditional portfolio for Asian emerging market investors. However, investors have limited opportunities to diversify their assets during the global financial crisis. Moreover, the shocks from the U.S. stock market have a greater influence on global stock markets compared to that from U.S. economic policy. Fortunately, the model with exogenous shocks improves its accuracy, which plays the same role of controlling structural breaks in the model. More importantly, incorporating exogenous shocks in our model also provides better value-at-risk performance results and hedging effectiveness. These results have several important implications for investors, researchers, and policymakers.     

Stock market comovements in Central Europe: Evidence from the asymmetric DCC model

We examine time-varying stock market comovements in Central Europe employing the asymmetric dynamic conditional correlation multivariate GARCH model. Using daily data from 2001 to 2011, we find that the correlations among stock markets in Central Europe and between Central Europe vis-à-vis the euro area are strong. The correlations increased over time, particularly after their EU entry and largely remained at these levels during the financial crisis. The stock markets exhibit asymmetry in the conditional variances and to a certain extent in the conditional correlations as well, pointing to the importance of applying a sufficiently flexible econometric framework. The conditional variances and correlations are positively related, suggesting that the diversification benefits decrease disproportionally during volatile periods.     

Co-movements of Shanghai and New York stock prices by time-varying regressions

We use time-varying regression to model the relationship between returns in the Shanghai and New York stock markets, with possible inclusion of lagged returns. The parameters of the regressions reveal that the effect of current stock return of New York on Shanghai steadily increases after the 1997 Asian financial crisis and turns significantly and persistently positive after 2002 when China entered WTO. The effect of current return of Shanghai on New York also becomes significantly positive and increasing after 2002. The upward trend has been interrupted during the recent global financial crisis, but reaches the level of about 0.4–0.5 in 2010 for both markets. Our results show that China’s stock market has become more and more integrated to the world market in the past twenty years with interruptions occurring during the recent global economic downturn.     

金融风暴中的风险管理与防范

2007年7月以来,美国次贷危机持续笼罩全球金融市场,导致美国房价大跌,资金紧缩,对世界股票市场、期货市场造成极大的冲击.随着金融危机对全球实体经济影响的日益加深,我国银行业也出现投资资产价值下降、零售业务放缓等迹象.因而,我国银行业应针对信贷管理中存在的薄弱环节,采取积极的措施,防范金融风险,保障商业银行健康发展.     

Causal effects of the United States and Japan on Pacific-Rim stock markets: nonparametric quantile causality approach

This article adopts a nonparametric quantile causality approach to examine the causal effects of the U.S. and Japan stock markets on the stock markets of the Pacific-Rim region. This approach allows us to detect not only nonlinear causalities in conditional return (mean) and conditional volatility (variance) but also the asymmetries of causalities under extreme market conditions (bullish vs. bearish states). Our results provide significant evidence of causality in return and volatility at different points of the conditional distributions of returns, with the greater effects from the U.S. than from Japan. Asymmetric quantile causality patterns are particularly pronounced in the case of Japan.     

美国次级房货危机对中国房货和金融市场的影响

美国次级房贷危机已对全球股市和美国经济产生较大影响。分析美国次级房贷危机产生的背景和原因,并指出中国的抵押贷款市场存在的重大风险。我们应该以美国次级债危机为借鉴,为中国房地产市场发展和金融市场的健康发展获得一些启示,并做好风险防范措施。     

Long memory revisit in Chinese stock markets: Based on GARCH-class models and multiscale analysis

In the present work we propose the rescaled range analysis (R/S), modified R/S method and detrended fluctuation analysis (DFA) to investigate the long memory property of Chinese stock markets based on the conditional and actual volatility series, and show that the stock markets in China display moderate positive degree of long memory. For the robustness, we implement the multiscale analysis on dynamic changes of time-varying Hurst exponents by applying the rolling window method based on DFA. Our results reveal that APGARCH model with the superior forecasting ability captures the long memory property better than other GARCH-class models for different time scale interval. Interestingly, the time-varying Hurst exponents of the sudden “jumps” for the conditional volatility calculated by the DFA method using the APGARCH model are smaller than that of the actual volatility series, which indicates that APGARCH model may underestimate the long memory property in the Chinese stock market. Our evidences provide new perspectives for the financial market forecasting.     

Dynamic correlation and equicorrelation analysis of global financial turmoil: evidence from emerging East Asian stock markets

This study investigates the dynamic conditional correlations (DCCs) between eight emerging East Asian stock markets and the US stock market and analyses the dynamic equicorrelation among these nine stock markets. We find a significant increase in the conditional correlations and equicorrelation in the first phase of the global financial crisis. We refer to this finding as contagion from the US stock market to the emerging East Asian markets. We also find an additional significant process of increasing correlations and equicorrelation (herding) in the second phase of the global financial crisis. Further, we employ two new models, namely DCCX-MGARCH (a DCC Multivariate GARCH model with exogenous variables) and DECOX-MGARCH (a dynamic equicorrelation multivariate GARCH model with exogenous variables), to identify the channels of contagion. We find that an increase in the VIX Index increases the conditional correlations and equicorrelation, while increases in TED spreads decrease the conditional correlations of six emerging East Asian countries with the USA. We compare the accuracy of the conditional correlation estimates of the DCC and DCCX models (or DECO and DECOX models) by constructing a loss function. We find that the DCCX (DECOX) model provides more accurate conditional correlation estimates than the DCC (DECO) model by extracting additional information from exogenous variables.     

FINANCIAL CRISES AND INTERNATIONAL STOCK MARKET VOLATILITY TRANSMISSION

This paper examines the interplay between stock market returns and their volatility, focusing on the Asian and global financial crises of 1997–98 and 2008–09 for Australia, Singapore, the UK, and the US. We use a multivariate generalised autoregressive conditional heteroskedasticity (MGARCH) model and weekly data (January 1992–June 2009). Based on the results obtained from the mean return equations, we could not find any significant impact on returns arising from the Asian crisis and more recent global financial crises across these four markets. However, both crises significantly increased the stock return volatilities across all of the four markets. Not surprisingly, it is also found that the US stock market is the most crucial market impacting on the volatilities of smaller economies such as Australia. Our results provide evidence of own and cross ARCH and GARCH effects among all four markets, suggesting the existence of significant volatility and cross volatility spillovers across all four markets. A high degree of time‐varying co‐volatility among these markets indicates that investors will be highly unlikely to benefit from diversifying their financial portfolio by acquiring stocks within these four countries only.