Volatility Spillovers from the Chinese Stock Market to Economic Neighbours
This paper examines whether there is evidence of spillovers of volatility from the Chinese stock market to its neighbours and trading partners, including Australia, Hong Kong, Singapore, Japan and USA. China’s increasing integration into the global market may have important consequences for investors in related markets. In order to capture these potential effects, we explore these issues using an Autoregressive Moving Average (ARMA) return equation. A univariate GARCH model is then adopted to test for the persistence of volatility in stock market returns, as represented by stock market indices. Finally, univariate GARCH, multivariate VARMA-GARCH, and multivariate VARMA-AGARCH models are used to test for constant conditional correlations and volatility spillover effects across these markets. Each model is used to calculate the conditional volatility between both the Shenzhen and Shanghai Chinese markets and several other markets around the Pacific Basin Area, including Australia, Hong Kong, Japan, Taiwan and Singapore, during four distinct periods, beginning 27 August 1991 and ending 17 November 2010. The empirical results show some evidence of volatility spillovers across these markets in the pre-GFC periods, but there is little evidence of spillover effects from China to related markets during the GFC. This is presumably because the GFC was initially a US phenomenon, before spreading to developed markets around the globe, so that it was not a Chinese phenomenon.
|Keywords||Chinese stock market, VARMA-AGARCH, VARMA-GARCH, volatility spillovers|
|Publisher||Erasmus School of Economics|
|Series||Econometric Institute Research Papers|
|Journal||Report / Econometric Institute, Erasmus University Rotterdam|
Allen, D.E, McAleer, M.J, & Amram, R. (2011). Volatility Spillovers from the Chinese Stock Market to Economic Neighbours (No. EI 2011-44). Report / Econometric Institute, Erasmus University Rotterdam (pp. 1–24). Erasmus School of Economics. Retrieved from http://hdl.handle.net/1765/31966