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Call for Papers: PIER Research Workshop 2025
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16 February 2018
20181518739200000
No. 082

Dynamic Connectedness in Emerging Asian Equity Markets

Abstract

This paper examines dynamic connectedness among emerging Asian equity markets as well as explores their linkages vis-à-vis other major global markets. We find that international equity markets are tightly integrated. Measuring connectedness based on a generalized Vector Autoregressive model, more than half of all total forecast error variance in equity return and volatility shocks come from other markets as opposed to country own shocks. When examining the degree of connectedness over time, we find that international stock markets have become increasingly connected, with a gentle upward trend since the Asian financial crisis but with a rapid burst during the global financial crisis. Despite the growing importance of Asian emerging markets in the world economy, we find that their influence on advanced economies is still relatively small, with no significant increase over time. During the past decade, advanced markets have been consistently net transmitters of shocks while emerging Asian markets act as net receivers. Based on the nature of equity shock spillovers, we also find that advanced countries are still tightly connected amongst themselves while intraregional connectedness within Asia remains strong. By investigating whether uncertainty plays an important role in explaining the degree of stock market connectedness, we find that economic policy uncertainty from the US is an important source of financial shock spillover for the majority of international equity markets. In contrast, US financial market uncertainty as proxied by the VIX index drives equity market spillovers only among advanced economies.

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JEL: G1F3
Tags: emerging asia financial integrationfinancial spilloversgeneralized varstock marketuncertainty
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Pym Manopimoke
Pym Manopimoke
Bank of Thailand
Suthawan Prukumpai
Kasetsart University
Yuthana Sethapramote
Yuthana Sethapramote
National Institute of Development Administration

Puey Ungphakorn Institute for Economic Research

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Phone: 0-2283-6066

Email: pier@bot.or.th

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