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Book part
Publication date: 8 March 2011

Yushi Yoshida

We investigate whether or not the effects of the subprime financial crisis on 12 Asian economies are similar to those of the Asian financial crisis by examining volatility

Abstract

We investigate whether or not the effects of the subprime financial crisis on 12 Asian economies are similar to those of the Asian financial crisis by examining volatility spillovers and time-varying correlation between the US and Asian stock markets. After pretesting volatility causality and constancy of correlation, we estimate an appropriate smooth-transition correlation VAR-GARCH model for each Asian stock market. First, the empirical evidence indicates stark differences in stock market linkages between the two crises. The volatility causality comes from the crises-originating country. Volatility in Asian stock markets Granger-caused volatility in the US market during the Asian crisis, whereas volatility in the US stock market Granger-caused volatility in Asian stock markets during the subprime crisis. Second, decreased correlations during the period of financial turmoil were observed, especially during the Asian financial crisis. Third, the estimated points of transition in the correlation are indicative of market participants’ awareness of the ensuing stock market crashes in July 1997 and in September 2008.

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The Evolving Role of Asia in Global Finance
Type: Book
ISBN: 978-0-85724-745-2

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Article
Publication date: 11 February 2020

Abdelkader Derbali and Ali Lamouchi

The purpose of this paper is to understand and compare the extent and nature of the impact of foreign portfolio investment (FPI) on the stock market volatility

Abstract

Purpose

The purpose of this paper is to understand and compare the extent and nature of the impact of foreign portfolio investment (FPI) on the stock market volatility, particularly in the Southeast Asian emerging markets, and compare that against the corresponding experience of Indian economy, in the context of a global financial crisis of the recent past.

Design/methodology/approach

The Asian emerging markets are now being perceived as becoming financially more and more vulnerable to international events because of their growing exposure to unstable foreign investment flows. The daily net FPI inflow and the daily leading stock market composite index of four countries, namely, Thailand, the Philippines, Indonesia and India, have been analyzed using autoregressive conditional heteroscedasticity (ARCH)-generalized ARCH group of models dividing the study period from 2000 to 2014 among pre-crisis, crisis and post-crisis period separately.

Findings

The study reveals that the net inflow of FPI has been a significant determinant of stock market returns in all countries. The impact of volatility spillover from the FPI market to the stock market in the sample countries has been found to be different under different market conditions. The past information and volatility clustering have been significantly influencing the stock market return volatilities of all these Southeast Asian countries on average.

Originality/value

However, there are significant country-wise differences in the relative importance and direction of the relationship of each of these effects with the volatility of the FPI and the stock markets. These effects have been different in these four different markets and they have significantly altered in strength and significance during the global financial crisis and in the post-financial crisis period.

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Pacific Accounting Review, vol. 32 no. 2
Type: Research Article
ISSN: 0114-0582

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Article
Publication date: 13 May 2020

Umm E. Habiba, Shen Peilong, Wenlong Zhang and Kashif Hamid

The purpose of this paper is to investigate the cointegration and volatility spillover dynamics between the USA and South Asian stock markets, namely, India, Pakistan and

Abstract

Purpose

The purpose of this paper is to investigate the cointegration and volatility spillover dynamics between the USA and South Asian stock markets, namely, India, Pakistan and Sri Lanka. The main objective of this study is to provide the knowledge about integration of financial market and volatility spillovers before, during and after global financial crisis to investors, fund managers and policy-makers.

Design/methodology/approach

The Johansen and Juselius cointegration test, Granger Causality test and bivaraite EGARCH model have been applied in this study to examine integration and volatility spillovers between selected stock markets.

Findings

The findings show that long-term integration between the USA market and South Asian emerging stock markets. It is found that USA stock market has causal relationship with emerging stock markets in short-term. The findings of EGARCH model reveal that asymmetric volatility spillover effects significant in all selected stock markets in pre, during and post-crisis periods. Furthermore, significant volatility spillover is found from stock markets of USA to all selected South Asian markets during and post-crisis periods. However, volatility spillovers from USA to India and Sri-Lanka markets are significant, while insignificant in case of Pakistani market in pre-crisis period. Overall, we find that returns and volatility spillover effects are higher in financial crisis period as compared to non-financial crisis period.

Practical implications

The findings of this paper have important implications for investors, portfolio managers and policy-makers. They can take potential benefits from international portfolio diversification by considering all these facts. The understanding and knowledge of across volatility transmission help them to maximize the gains from diversification and minimize the risk. Policy-makers can develop such strategies which protect the markets of these economies from future financial crisis.

Originality/value

Although in finance literature numerous studies have been conducted on integration between different stock markets, most of the studies investigated the integration and volatility spillovers between developed stock markets. However, many studies also analyzed the integration among emerging stock markets in literature review but it is hard to find studies in the context of South Asian stock markets on the effect of global financial crisis on stock markets. The main contribution of this study is to investigate the stock markets integration and volatility transmission between the USA and South Asia by considering the effect of recent 2007 US subprime financial crisis.

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Journal of Asia Business Studies, vol. 14 no. 5
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 28 October 2013

Monica Singhania and Jugal Anchalia

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Research limitations/implications

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.

Practical implications

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.

Originality/value

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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Journal of Advances in Management Research, vol. 10 no. 3
Type: Research Article
ISSN: 0972-7981

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Article
Publication date: 8 May 2018

Khalil Jebran

This paper aims to examine the volatility spillover dynamics between stock and foreign exchange market of China considering subprime 2007 financial crisis period.

Abstract

Purpose

This paper aims to examine the volatility spillover dynamics between stock and foreign exchange market of China considering subprime 2007 financial crisis period.

Design/methodology/approach

This study considered daily data from January 2, 2002, to December 31, 2013. The sample period has been further divided into three periods; full sample period (January 2002-December 2013), pre-crisis period (January 2002-October 2007) and post-crisis period (October 2007-December 2013). This study opted Exponential Generalized Autoregressive Heteroskedasticity (EGARCH) model for the purpose of investigating asymmetric volatility spillover.

Findings

The results obtained using the EGARCH model imply that volatility spillover dynamics varies from period to period. In full sample period, the results show evidence of significant unidirectional volatility spillover from foreign exchange market to stock market. In pre-crisis period, the results indicate unidirectional volatility spillover from stock market to foreign exchange market. However, in post-crisis period, the results reveal significant bidirectional volatility spillover between stock and foreign exchange market.

Practical implications

The results of the study are important for policy makers because understanding the behavior of the financial markets, i.e. stock and foreign exchange market, would increase the success of policies implemented in a crisis situation. The results would help investors to formulate efficient portfolios.

Originality/value

This study is an important contribution to the existing literature in terms of analyzing volatility spillover between stock and foreign exchange market in an emerging economy, China. Furthermore, this study explored the volatility spillover dynamics between the two markets by considering the pre and post subprime Asian crisis period.

Details

Journal of Asia Business Studies, vol. 12 no. 2
Type: Research Article
ISSN: 1558-7894

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Article
Publication date: 1 August 2016

Md Ahmed Mostafa

– The purpose of this paper is to explore the impact of institutional trading on the market quality during the financial crisis and short sale ban.

Abstract

Purpose

The purpose of this paper is to explore the impact of institutional trading on the market quality during the financial crisis and short sale ban.

Design/methodology/approach

The following methods was applied to discuss the total impact on market quality and efficiency of short sale ban in USA from 2001 to 2010. The author examined institutional ownership and breadth of ownership while performing a mean variance tests for changes in efficiency as well as multivariate analysis.

Findings

Analyzing USA, Standard and Poor’s 500 stocks the author find increase high-low volatility, realized volatility, effective spread and relative quoted spread during January 1, 2007 to December 31, 2010. Realized volatility increases for both small and large quantile stocks. High-low volatility increases for small quantile stocks and relative quoted spread increases for large quantile stocks. Comparing the percentage change between pre and climax period we find that large quantile stocks have a negative association between breadth of institutional ownership and returns and a positive relation high-low volatility, realized effective spread and quoted spread to returns.

Originality/value

The present paper is the first to discuss the total impact on market quality and efficiency of short sale ban in USA from 2001 to 2010. The author find a remarkable improvement in market efficiency (variance ratios) after the crisis period for small and non-financial stocks, while the price efficiency lost during the crisis period is more persistent for large and financial stocks.

Details

International Journal of Managerial Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 11 May 2012

Samer AM Al‐Rjoub and Hussam Azzam

The purpose of this paper is to empirically examine stock returns behavior during financial crises for an emerging market from 1992 to 2009. The authors identify episodes…

Abstract

Purpose

The purpose of this paper is to empirically examine stock returns behavior during financial crises for an emerging market from 1992 to 2009. The authors identify episodes of significant price declines “crashes” and watch the stock price behavior during these episodes.

Design/methodology/approach

This paper examines seven historical episodes of stock market crashes and their aftermath in the ASE over the last 18 years. The authors examine the behavior of stock returns and volatility in ASE during global, regional and local events. For this purpose the GARCH‐M model is used to capture changes in variance. The data covers the period from January 1, 1992 to July 2, 2009 with different data frequency of daily, weekly and monthly closing prices for ASE general weighted price index. The authors use the crisis specification adopted by Mishkin and White where they define stock market crash as 20 percent decline in the stock market, and the one adopted by Patel and Sarker where they use a 35 percent or more fall in emerging stock market from its historical maximum as a definition of stock market crash, and the authors extend by adopting a third scenario to account only for the 2008‐2009 crisis.

Findings

The results show that crises in general have negative impact on stock returns for all sectors, with the banking sector being the most affected. The effect of the 2008‐2009 crash is the most severe, with the largest drop in stock prices and high volatilities. The paper provides an evidence of high persistence in volatility and strong reverse relationship between stock return and its volatility before and after the crises.

Research limitations/implications

The paper does not include rest‐of‐the‐world economies.

Practical implications

Stock return behavior change around financial crises, it can help the investment world and the academics predict stock return behavior and the dynamics of the first two moments during crises.

Originality/value

The authors use three crisis specifications in one paper adopted by Mishkin and White (2002), Patel and Sarker (1998) and extend by adopting a third scenario to account only for the 2008‐2009 crisis. The paper tests for robustness of the results using daily, weekly, and monthly frequencies. Few studies have examined the behavior of stock returns and volatility during financial crises with the majority of work done on developed markets.

Details

Journal of Economic Studies, vol. 39 no. 2
Type: Research Article
ISSN: 0144-3585

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Book part
Publication date: 28 September 2020

Ihsan Erdem Kayral, Hilal Merve Alagoz and Nisa Sansel Tandogan

The aim of this study is to compare volatility persistence with daily volatility and to analyze the asymmetry effect of volatilities in stock markets of emerging…

Abstract

The aim of this study is to compare volatility persistence with daily volatility and to analyze the asymmetry effect of volatilities in stock markets of emerging economies. Using daily observations of stock market indices of selected major emerging countries during the period of January 1, 2002 to December 31, 2018, the authors estimate the persistence, the half-life measure of volatility and the daily volatility of the return series using the GARCH model application. The authors also examine the leverage effect on stock market returns using the EGARCH model estimation. In addition, the authors investigate the impact of the 2008 global financial crisis on various volatility measures and the leverage effect of emerging stock market returns. The authors then examine and compare the different speeds of mean reversion, volatility persistence and leverage effects in the national stock market indices during the pre-crisis, crisis, and post-crisis periods. The authors hereby present evidence that the effects of negative shocks are significantly larger than those of positive shocks in emerging stock markets throughout their different sample periods.

Details

Emerging Market Finance: New Challenges and Opportunities
Type: Book
ISBN: 978-1-83982-058-8

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Article
Publication date: 20 February 2017

Worawuth Kongsilp and Cesario Mateus

The purpose of this paper is to investigate the role of volatility risk on stock return predictability specified on two global financial crises: the dot-com bubble and

Abstract

Purpose

The purpose of this paper is to investigate the role of volatility risk on stock return predictability specified on two global financial crises: the dot-com bubble and recent financial crisis.

Design/methodology/approach

Using a broad sample of stock options traded on the American Stock Exchange and the Chicago Board Options Exchange from January 2001 to December 2010, the effect of different idiosyncratic volatility forecasting measures are examined on future stock returns in four different periods (Bear and Bull markets).

Findings

First, the authors find clear and robust empirical evidence that the implied idiosyncratic volatility is the best stock return predictor for every sub-period both in Bear and Bull markets. Second, the cross-section firm-specific characteristics are important when it comes to stock returns forecasts, as the latter have mixed positive and negative effects on Bear and Bull markets. Third, the authors provide evidence that short selling constraints impact negatively on stock returns for only a Bull market and that liquidity is meaningless for both Bear and Bull markets after the recent financial crisis.

Practical implications

These results would be helpful to disclose more information on the best idiosyncratic volatility measure to be implemented in global financial crises.

Originality/value

This study empirically analyses the effect of different idiosyncratic volatility measures for a period that involves both the dotcom bubble and the recent financial crisis in four different periods (Bear and Bull markets) and contributes the existing literature on volatility measures, volatility risk and stock return predictability in global financial crises.

Details

China Finance Review International, vol. 7 no. 1
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 2 May 2019

Mouna Aloui, Bassem Salhi and Anis Jarboui

The purpose of this paper is to study the impact of some corporate governance mechanisms on the market risk (stock price return and volatility, exchange rate) and on the…

Abstract

Purpose

The purpose of this paper is to study the impact of some corporate governance mechanisms on the market risk (stock price return and volatility, exchange rate) and on the exchange rate and Treasury Bill during the financial crisis. In order to better clarify the firms’ resistance to financial crises, the effect of exchange rate, Treasury Bill and the market risk are also considered.

Design/methodology/approach

The study uses a sample data of the SBF 120 on a panel of 99 French firms over the period between 2006 and 2015 divided into three sub-periods: the first sub-period, which covers the period between December 31, 2006 and December 31, 2009, was characterized by the outbreak of the subprime crisis. The second sub-period considers the sovereign debt crisis in Europe between December 31, 2010 and December 31, 2012. The last sub-period includes the post-crisis period (December 31, 2013 to December 31, 2015). The GARCH and BEKK models are used to capture the effect of volatility and conditional heteroskedasticity of both corporate governance and market risk.

Findings

The paper found that during the financial crisis (first sub-period, the sovereign crisis period), the high shareholders’ protection had a positive and significant impact on the stock market returns. Furthermore, the shareholders’ protection, the Treasury Bill, the institutional investors, the board’s size, had a negative and significant effect on the stock returns volatility. During the post-crisis period, the high protection and the board’s size had a negative and significant effect on the volatility of the stock returns.

Research limitations/implications

This result implies that during the financial crisis, the high shareholders’ protection played a role in increases the stock market return and minimized the stock return volatility.

Practical implications

This study helps in improving the legal protection of investors and helps managers, shareholders and investors to evaluate their investments. This study also provides implications for policymakers and legal environment in order to evaluate the importance of the current corporate governance frameworks in place.

Originality/value

This result implies that the institutional investors, as the results suggest, should follow the shareholders’ protection in all the countries to make decisions about their investments since the high shareholders’ protection increases the firm’s stock returns and decreases the stock return volatility.

Details

International Journal of Managerial Finance, vol. 15 no. 5
Type: Research Article
ISSN: 1743-9132

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