Jump Interdependencies: Stochastic linkages among international stock markets |
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| Affiliation: | 1. Indian Institute of Technology Tirupati, India;2. Indian Institute of Technology Madras, India;1. Eastern Mediterranean University, Northern Cyprus, via Mersin 10, Turkey;2. Economic Research Form, Cairo, Egypt;3. Atilim University, Ankara, Turkey;1. Department of Finance, National Sun-Yat Sen University, Kaohsiung, Taiwan;2. College of Management, National Sun-Yat Sen University, Kaohsiung, Taiwan |
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| Abstract: | This study investigates the volatily jump contagion among the Asian, European (Germany, UK, & France) and US markets. In particular, it examines the stochastic linkages among the international stock markets and analyzes the self and cross-excitation of jumps. The discontinuities in the stochastic volatility of each market are identified and their structural inter-dependencies are analyzed. Our empirical results imply that negative jumps from the USA and Europe are transmitted to the domestic Asian markets, while positive jumps are majorly from the regional markets. Results also imply that the cross-market linkages vary with respect to markets and regimes. Our results have implications for risk management, investment and hedging decisions. |
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| Keywords: | Jump Contagion Self Excitation and Cross-Excitation Stochastic Volatility Wavelet Decomposition Threshold Auto Regression |
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