Volatility Spillover Between Asean-5, Greece, And Japan Stock Market Indices
Abstract
With its rapid economic development over the last few decades, ASEAN has played an essential role in the global markets. ASEAN has formed ASEAN Economic Community (AEC) to strengthen the long-term synergy among countries. Its export and import activities significantly influence its trading partners, such as EU28 and Japan. Using a Diagonal BEKK-GARCH model, this study aims to analyze the stock market linkages between ASEAN-5 countries and Greece, one of the EU28 members, and Japan in terms of volatility spillovers, considering Greece's sovereign debt crisis. The results indicate evidence of volatility spillovers for all seven countries examined. Using daily returns of ASEAN-5, Greece, and Japan stock market indices from 2005 to 2015, the findings show a larger magnitude of GARCH effects (volatility spillovers) than the ARCH effect (information spillover). Moreover, there is evidence of a high level of financial integration and correlation in the ASEAN-5, Greece, and Japan stock markets. Therefore, one of the crucial implications of this study is that investors cannot reduce their portfolio risk through diversification by adding stocks from these markets.
Keywords: Volatility spillover effect, Diagonal BEKK, multivariate GARCH, stock markets.
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