Empirical Study on International Financial Markets
Date Issued
2011
Date
2011
Author(s)
Hsu, Pi-Chun
Abstract
The current dissertation consists of two topics of interdependence and monetary policy transmission for the Asian emerging stock markets and both adopt the time series econometrics method.
The first subject empirically examines the interdependence of returns and volatility among the South Korean, Japanese and the US stock markets by focusing specifically on the spillover effects from the world first and second largest financial markets to the emerging market such as South Korea. We use (1) the univariate generalized autoregressive conditional heteroskedasticity in mean (GARCH-M) model, (2) the univariate GARCH-M with interdependent effects model, and (3) the multivariate GARCH-M models to assess the magnitude of the time-varying cross-market interdependence. Based on the results from the estimation of returns by these three models, we find stronger positive impacts on South Korea arising from Japan than from the US. Moreover, from the estimation of conditional volatility, we find significant bidirectional Granger causality between South Korea and Japan, especially from negative spillover volatility clustering effects. The results in this chapter indicate that Japan is an industrial competitor to South Korea and the US is a global consumer to them both. The different roles played by these countries and in the stock market, may suggest that potential portfolio benefits exist from diversifying and acquiring the competitor rather than the consumer.
To take a broad prospect, the second subject is a examination of assessing the effects of US monetary policy on the Asian stock markets. We study the external effects of changes in US monetary policy to the Asian emerging stock markets, i.e. Hong Kong, Singapore, South Korea, and Taiwan. Using exponential GARCH (EGARCH) with dummy variable models and Markov-switching EGARCH models, the empirical evidence form weekly data indicate that changes in the US monetary policy measure as Fed fund rate has larger asymmetric effects on Asian stock returns during their bull markets relative to their impact over US stock markets. In addition, it is shown that expansive US monetary policy is contrary to simultaneously in Asian local monetary policy changes and associated with higher probability of switching to the bull-market regime for Asian stock markets while which effect insignificantly over the US stock market herself. Therefore, the transmission of changes in US monetary policy not only is asymmetry to Asian stock markets volatility but also be asymmetric comparing the impact across US and Asian stock markets.
In brief, this dissertation adopts currently practical econometrics methods to study the international stock markets. The first study contributes to the financial research with the idea of industrial competition between countries, while the second study contributes to the international financial research with the local stock market regime switching affected by the US monetary policy change. It is worth for further research in expanding the methodology to link the examination of interaction among monetary policy, stock market and industrial competition.
Subjects
Spillover effect
monetary policy
stock returns
emerging stock markets
multivariate GARCH-M mode
Markov-switching GARCH-M model
Type
thesis
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