Volatility Spillovers and Contagion from Mature to Emerging Stock Markets

Author/Editor:

Guglielmo Maria Caporale ; Marianne Schulze-Gattas ; John Beirne ; Nicola Spagnolo

Publication Date:

December 1, 2008

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines volatility spillovers from mature to emerging stock markets and tests for changes in the transmission mechanism-contagion-during turbulences in mature markets. Tri-variate GARCH-BEKK models of returns in global (mature), regional, and local markets are estimated for 41 emerging market economies (EMEs), with a dummy capturing parameter shifts during turbulent episodes. LR tests suggest that mature markets influence conditional variances in many emerging markets. Moreover, spillover parameters change during turbulent episodes. Conditional variances in most EMEs rise during these episodes, but there is only limited evidence of shifts in conditional correlations between mature and emerging markets.

Series:

Working Paper No. 2008/286

Subject:

Emerging and frontier financial markets Financial crises Securities markets Spillovers Stock markets

English

Publication Date:

December 1, 2008

ISBN/ISSN:

9781451871449/1018-5941

Stock No:

WPIEA2008286

Pages:

40

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