Modelling Volatility Spillover Effects Between Developed Stock Markets and Asian Emerging Stock Markets

Abstract This paper examines the linkages of stock markets across the USA, Japan and six Asian developing countries: China, India, Indonesia, Malaysia, the Philippines and Thailand over the period 1 January 1993 to 31 December 2012. The volatility spillover is modelled through an asymmetric multivariate generalized autoregressive conditional heteroscedastic model. We find significant unidirectional shock and volatility spillovers from the US market to both the Japanese and the Asian emerging markets. It is also found that the volatility spillovers between the US market and the Asian markets are stronger and bidirectional during the Asian financial crisis. Further, during the last 5 years, the linkages between the Japanese market and the Asian emerging markets became more apparent. Our paper contributes to the literature by examining both the long‐run and the short‐run periods and focusing on shock and volatility spillovers rather than return spillovers, which have been the primary focus of most other studies. Copyright © 2014 John Wiley & Sons, Ltd.