Shift-Volatility Transmission in East Asian Equity Markets

Marcel Aloy (1) , Gilles de Truchis (1) , Gilles Dufrénot (1, 2, 3) , Benjamin Keddad (1)

1 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
2 Centre de recherche de la Banque de France
3 CEPII - Centre d'Etudes Prospectives et d'Informations Internationales

This paper attempts to provide evidence of "shift-volatility" transmission in the East Asian equity markets. By shift-volatility, we mean the volatility shifts from a low level to a high level, corresponding respectively to tranquil and crisis periods. We examine the interdependence of equity volatilities between Hong-Kong, Indonesia, Japan, Malaysia, the Philippines, Singapore, Thailand and the United States. Our main issue is whether shift-volatility needs to be considered as a regional phenomenon, or from a more global perspective. We find that the timing/spans of high volatility regimes correspond adequately to years historically documented as those of crises (the Asian crisis and the years following the 2008 crisis). Moreover, we suggest different indicators that could be useful to guide the investors in their arbitrage behavior in the different regimes: the duration of each state, the sensitivity of the volatility in a market following a change in the volatility in another market. Finally, we are able to identify which market can be considered as leading markets in terms of volatility.

Mots clés: TVPMS; regime shifts; equity volatility; East Asia

Domaines: Economies et finances

Marcel Aloy, Gilles de Truchis, Gilles Dufrénot, Benjamin Keddad. Shift-Volatility Transmission in East Asian Equity Markets. 2013. ⟨halshs-00935364⟩