Directional spillover effects between ASEAN and world stock markets

• Published in: Journal of multinational financial management Vol. 52-53; p. 100592
• Main Authors: Kang, Sang Hoon, Uddin, Gazi Salah, Troster, Victor, Yoon, Seong-Min
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.12.2019
• Subjects: ASEAN stock markets; DECO; Directional spillover index; Financial market contagion; Global financial crisis; Financial market contagion; DECO; F65; C58; F36; ASEAN stock markets; G15; Directional spillover index; Global financial crisis
• ISSN: 1042-444X; 1873-1309; 1873-1309
• DOI: 10.1016/j.mulfin.2019.100592

•We investigated dynamic spillover between world markets and ASEAN-5 stock markets.•We used a multivariate AR-GARCH-DECO model and the directional spillover index.•We found positive spillover effects between the ASEAN-5 and world stock markets.•We identified an increase in return and volatility spillovers during the crises.•Most of the ASEAN-5 countries were net recipients during recent financial crises. We investigate dynamic spillovers between ASEAN-5 and world stock markets using a dynamic equicorrelation (DECO) model and the spillover index of Diebold and Yilmaz (2012), which identifies net directional spillovers for each one of the markets. The DECO model uses more information to calculate dynamic correlations between each pair of returns than standard dynamic conditional correlation models, decreasing the estimation noise of the correlations. Directional spillovers from world stock markets to ASEAN-5 stock markets are higher than in the opposite direction. Besides, our results indicate heterogeneity among the ASEAN-5 stock markets in the degree of spillover to world markets over time. We verify an increase in both return and volatility spillovers during financial crises, confirming the intensity of information transmission during periods of turmoil. These findings help understand the economic channels through which the ASEAN-5 equity markets are connected, and have important implications for emerging and frontier markets.