Sogang University

Price and Volatility Spillovers in Stock Markets : A Wavelet Analysis

Email address: hahnlee@ccs.sogang.ac.kr

Keywords: Wavelet analysis, Stock returns, Volatility, Spillovers

JEL Classifications: C14, C22, G15

Abstract:
While GARCH-type models are mainly used to investigate international transmission mechanism of stock markets in much of previous studies, an attempt is made in this paper to examine price and volatility spillover effects across international stock markets via wavelet analysis. We first propose a new testing strategy to spillover effects based on discrete wavelet decomposition, which is then applied to investigate the dynamics and the potential interaction in international stock markets. Using the data on the daily stock returns of the U.S. Dow Jones index and of the KOSPI (Korea Composite Stock Price Index), strong evidence is found for price as well as volatility spillover effects from the U.S. stock markets to the Korean counterparts, but not vice versa. Our methodology can naturally be applied to any sets of international stock market returns to provide new evidence on spillover effects.

PDF file of paper: lee_hs.pdf

Session: Volatilities

Time: Friday, 6 July, 8:45am - 10:15am

Room: A