Empirica

, Volume 42, Issue 3, pp 597–613

Non-linearity, persistence and spillover effects in stock returns: the role of the volatility index

Original Paper

DOI: 10.1007/s10663-014-9266-y

Cite this article as:
Wu, PC., Pan, SC. & Tai, XL. Empirica (2015) 42: 597. doi:10.1007/s10663-014-9266-y
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Abstract

This paper employs panel smooth transition autoregression models, using the volatility index (VIX) as the transition variable, to evaluate the persistence, efficiency, and spillover effects of stock markets in G-10 and ASEAN-5 countries. The persistence effects are nonlinear and vary with time and across countries, depending on the value of the VIX. When VIXs are over specific thresholds (30.69 and 31.04), the stock returns in G-10 and ASEAN-5 display moderate and similar persistence effects and make lagged stock returns become more important when evaluating current stock returns. The spillover effects occur from VIX to stock returns. The speculation behavior of stock markets in ASEAN-5 is higher than that in G-10; however, the result in the efficiency of stock markets is the opposite.

Keywords

Panel smooth transition autoregression (PSTAR) model Volatility index (VIX) Persistence Spillover effect Regime switching 

JEL Classification

C23 G10 

Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of International BusinessChung Yuan Christian UniversityChung LiTaiwan, ROC
  2. 2.Department of Tourism and Leisure ManagementChina University of TechnologyHukou TownshipTaiwan, ROC