Handbook of Quantitative Finance and Risk Management pp 1283-1291 | Cite as
Examining the Impact of the U.S. IT Stock Market on Other IT Stock Markets
Because of its very important role in modern production and management, information technology (IT) has become a major driver of economic growth and has speeded up the integration of the global economy since the 1990s. Due to the prominent position of the IT industry in the U.S., the U.S. IT stock market is believed to have driven up IT stock markets in other countries. In this paper, we adopt a multivariate GARCH model of Baba et al. (Unpublished manuscript, Department of Economics, University of California, San Diego, 1990) to investigate the linkages between the IT stock and several non-U.S. IT markets; namely, Japan, France, Canada, Finland, Sweden, and Hong Kong. Our findings reveal that, generally, the U.S. IT market contributes strong volatility to non-U.S. IT markets rather than having a mean spillover effect, implying that the U.S. IT market plays a dominant role in the volatility of world IT markets. In addition, our analysis of the dynamic path of correlation coefficients implies that during the formation, spread, and collapse of the IT bubble, the relationships between the U.S. and non-U.S. IT markets are strong but the relationships weaken after the IT bubble bursts.
KeywordsInformation technology IT bubble Stock market Integration Volatility Spillover effect Multivariate GARCH (MGARCH) Conditional correlation
The authors are most grateful to Professor C.F. Lee for his substantive comments and suggestions that have significantly improved this manuscript. The third author would like to thank Professors Robert B. Miller and Howard E. Thompson for their continuous guidance and encouragement. The research is partially supported by University of Macau, Universiti Malaysia Sabah, and Hong Kong Baptist University.
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