Asian markets have shown immediate response to the financial crisis in the past and stock returns were affected critically. An attempt is made to study the volatility of stock returns in this paper. The authors studied the impact of global crisis on volatility of stock returns; that can help in better policy selection and implementation in the scenario of financial downturn. Looking at the increase in volume of trades between Asia and the world, Asian markets have gained prime position within global financial industry. Thus, it is essential that more researches are employed for better understanding of Asian Markets.
Impact on volatility of stock market returns of Hong Kong, Japan, China and India during sub-prime crisis and Eurozone debt crisis has been estimated using Exponential Generalized Autoregressive Conditional Heteroskedasticity (EGARCH) model. The analysis is done using time series data of daily returns for the period 2005-2011 of the major indices of these countries (Hang Seng, Nikkei 225, Shanghai Composite and Nifty for Hong Kong, Japan, China and India, respectively). These series show non-normality, thick tails and high persistence in volatility and clustering and asymmetric properties.
It has been found that the sub-prime crisis had a positive impact on the volatility of returns of Japan, China and India while it had no impact on the volatility of returns of Hong Kong. In addition, it is interesting to see that the period of Eurozone debt crisis has had a negative impact on the volatility of already highly volatile stock returns of countries such as India and China. However, no impact on volatility of stock market returns in Japan and Hong Kong was observed of the Eurozone crisis. Also the authors noticed volatility clustering, persistence, asymmetry and leverage effects’ in stock returns series of Hong Kong, Japan, China and India.
As far as limitations of the paper are concerned, the economy per say always has a cyclic tendency. This again has scope for distorting the final result and as again the reason given above the authors think that the effect will be minimized. As the paper is using specific statistical methods to verify the model and so the basic limitations of the statistical methods used will apply to the model also.
The results could be used in better understanding of the nature of sub-prime crisis and Eurozone debt crisis and how they impact different stock markets of Asia. Better policies during different scenarios of crisis could be employed by the countries. Furthermore, it can also prove useful in minimizing the impact on Asian markets from economic crisis in future.
The research is first to indicate the relationship between global crisis and sudden changes in variance of stock returns in Asian markets. The paper attempts to fill the gap of research in this area and also suggests the difference in nature of crisis and how they can affect certain countries. Further research could be done in studying suitable policy measures that can be implemented during different kinds of global crisis.
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