Advertisement

The Financial Stress Spillover: Evidence from Selected Asian Countries

  • Zulfiqar Ali Shah
  • Muhammad Ejaz Majeed
  • Biagio SimonettiEmail author
  • Corrado Crocetta
Conference paper
Part of the Springer Proceedings in Mathematics & Statistics book series (PROMS, volume 274)

Abstract

The objective of the study is to analyze financial stress spillover among selected Asian countries, namely, China, Pakistan, Sri Lanka, Malaysia and India for the period from Jan 2001 to Dec 2009. The financial stress is measured by Financial Stress Index (FSI), a specially designed comprehensive measure of financial stress. The methodology of Yimlam 2012 is adopted for analyzing dynamics of variance decomposition among countries using FSI for the selected countries. The results of the study confirm that China and Pakistan are the largest transmitters of spillover towards other selected countries. Also the net spillover of China and Pakistan indicated to be positive whereas all other countries show up negative net spillovers. The economic and geographic linkages are suggested to be responsible for influencing magnitude of spillover among selected countries. Finally, the response of each country to shocks in other countries is found to be positive.

Keywords

Financial stress spillover Asian countries Inequality 

References

  1. 1.
    Abbas, Khan S., Shah, Z.A.: Volatility spillover among regional Asian stock markets. Emerg. Mark. Rev. 16, 66 (2013)CrossRefGoogle Scholar
  2. 2.
    Aggarwal, R., Kyaw, N.A.: Equity market integration in the NAFTA region: evidence from unit root and co-integration tests. Int. Rev. Financ. Anal. 14, 393–406 (2005)CrossRefGoogle Scholar
  3. 3.
    Allen, D.E., Amram, R., McAleer, M.: Volatility spillovers from the Chinese Stock market to economic neighbours. Math. Comput. Simul. 94, 238–257 (2013).  https://doi.org/10.1016/j.matcom.2013.01.001MathSciNetCrossRefGoogle Scholar
  4. 4.
    Allen, D.E., McAleer, M., Powell, R.J., Singh, A.K.: Volatility spillovers from Australia’s major trading partners across the GFC. Int. Rev. Econ. Financ. (2016). http://dx.doi.org/10.1016/j.iref.2016.10.007
  5. 5.
    Aloui, R., Ben Aissa, M.S., Nguyen, D.K.: Global financial crisis, extreme interdependences, and contagion effects: the role of economic structure? J. Bank. Financ. 35, 130–141 (2011)CrossRefGoogle Scholar
  6. 6.
    Antonakakis, N., Vergos, K.: Sovereign bond yield spillovers in the Euro zone during the financial and debt crisis. J. Int. Financ. Mark. Inst. Money 26, 258–272 (2013).  https://doi.org/10.1016/j.intfin.2013.06.004CrossRefGoogle Scholar
  7. 7.
    Apostolakis, G., Papadopoulos, A.P.: Financial stress spillovers in advanced economies. J. Int. Financ. Mark. Inst. Money 32, 128–149 (2014).  https://doi.org/10.1016/j.intfin.2014.06.001CrossRefGoogle Scholar
  8. 8.
    Apostolakis, G., Papadopoulos, A.P.: Financial stress spillovers across the banking, securities and foreign exchange markets. J. Financ. Stab. 19, 1–21 (2015).  https://doi.org/10.1016/j.jfs.2015.05.003CrossRefGoogle Scholar
  9. 9.
    Babecky, Jan, Havranek, Tomas, Mateju, Jakub, Rusnak, Marek, Smidkova, Katerina, Vasicek, Borek: Leading indicators of crisis incidence: evidence from developed countries. J. Int. Money Financ. 35(2013), 1–19 (2013)CrossRefGoogle Scholar
  10. 10.
    Balakrishnan, R., Danninger, S., Tytell, I., Elekdag, S.A.: The transmission of financial stress from advanced to emerging economies (No. 09/133). Working Paper Series IMF (2009)Google Scholar
  11. 11.
    Basu, R.: Financial contagion and investor learning: an empirical investigation. International Monetary Fund (2002)Google Scholar
  12. 12.
    Beirne, J., Caporale, G.M., Schulze-Ghattas, M., Spagnolo, N.: Global and regional spillovers in emerging stock markets: a multivariate GARCH-in-mean analysis. Emerg. Mark. Rev. 11, 250–260 (2010)CrossRefGoogle Scholar
  13. 13.
    Caramazza, F., Ricci, L.A., Salgado, R.: Trade and financial contagion in currency crises. IMF Working Paper WP/00/55, International Monetary Fund, Washington (2000)Google Scholar
  14. 14.
    Cardarelli, R., Elekdag, S., Lall, S.: Financial stress and economic contractions. J. Financ. Stab. 7, 78–97 (2011). http://dx.doi.org/10.1016/j.jfs.2010.01.005CrossRefGoogle Scholar
  15. 15.
    Cardarelli, R., Elekdag, S., Lall, S.: Financial stress, downturns, and recoveries. (No. 09/100) IMF Working Paper (2009)Google Scholar
  16. 16.
    Chi, J., Li, K., Young, M.: Financial integration in East Asian equity markets. Pac. Econ. Rev. 11(4), 513–526 (2006)CrossRefGoogle Scholar
  17. 17.
    Chiang, S.M., Chen, H.F., Lin, C.T.: The spillover effects of the sub-prime mortgage crisis and optimum asset allocation in the BRICV stock markets. Glob. Financ. J. 24, 30–43 (2013)CrossRefGoogle Scholar
  18. 18.
    Choudhry, T.: International transmission of stock returns and volatility: empirical comparison between friends and foes. Emerg. Mark. Financ. Trade 40(4), 33–52 (2004)MathSciNetCrossRefGoogle Scholar
  19. 19.
    Chui, Hall, Taylor: Crisis spillovers in emerging market economies: interlinkages, vulnerabilities and investor behavior. Bank of England, Working Paper No. 212 (2004)Google Scholar
  20. 20.
    Claeys, P., Vasícek, B.: Measuring bilateral spillover and testing contagion on sovereign bond markets in Europe. J. Bank. Financ. (2014). http://dx.doi.org/10.1016/j.jbankfin. Accessed 5 Nov 2014
  21. 21.
    Diebold, F.X., Yilmaz, K.: Better to give than to receive: predictive directional measurement of volatility spillovers. Int. J. Forecast. 28, 57–66 (2016).  https://doi.org/10.1016/j.ijforecast.2011.02.006CrossRefGoogle Scholar
  22. 22.
    Eichengreen, B., Rose A.: Contagious currency crises: channels of conveyance. In: Ito, T., Krueger, A. (eds.) Changes in Exchange Rates in Rapidly Developing Economies. University of Chicago Press, Chicago (1999)Google Scholar
  23. 23.
    Fernández, F., Puig, M., Rivero, S.: Volatility spillovers in EMU sovereign bond markets. Research Institute of Applied Economics. Working Paper 2015/10- 1/32 (2015)Google Scholar
  24. 24.
    Forbes, K.: Are trade linkages important determinants of country vulnerability to crises? In: Paper Prepared for the NBER Conference on Currency Crises Prevention, National Bureau of Economic Research, Cambridge, Massachusetts, January 2001Google Scholar
  25. 25.
    Forbes, K.J., Rigobon, R.: No contagion, only interdependence: measuring stock market comovements. J. Financ. 57, 2223–2261 (2002)CrossRefGoogle Scholar
  26. 26.
    Gallo, G.M., Velucchi, M.: Market interdependence and financial volatility transmission in East Asia. Int. J. Financ. Econ. 14, 24–44 (2009)CrossRefGoogle Scholar
  27. 27.
    Gerard, B., Thanyalakpark, K., Batten, J.A.: Are the East Asian markets integrated? Evidence from the ICAPM. J. Econ. Bus. 55(5), 585–607 (2003)CrossRefGoogle Scholar
  28. 28.
    Glick, R., Rose, A.K.: Contagion and trade: why are currency crises regional? J. Int. Money Financ. 18, 603–617 (1999)Google Scholar
  29. 29.
    Goetzmann, W., Ingersoll, J., Spiegel, M.I., Welch, I.: Sharpening sharpe ratios. National Bureau of Economic Research (2002)Google Scholar
  30. 30.
    Greenwood, M., Nguyen, V., Rafferty, B.: Risk and return spillovers among the G10 currencies. J. Financ. Mark. (2016). http://dx.doi.org/10.1016/j.finmar.2016.05.001
  31. 31.
    Grobys, Klaus: Are volatility spillovers between currency and equity market driven by economic states? Evidence from the US economy. Econ. Lett. 127(2015), 72–75 (2015)CrossRefGoogle Scholar
  32. 32.
    Heryan, T., Ziegelbauer, J.: Relations between yields of government bonds in GIPS countries during the sovereign debt crisis in The EMU. 13th International Scientific Conference “Economic Policy in the European Union Member Countries” September 2–4, 2015, Karolinka, CZECH REPUBLIC (2015) Google Scholar
  33. 33.
    Janakiraman, S., Lamba, A.S.: An empirical examination of linkages between Pacific-basin stock markets. J. Int. Financ. Mark. Inst. Money 8, 155–173 (1998)Google Scholar
  34. 34.
    Khalid, A.M., Rajaguru, G.: Financial market linkages in South Asia: evidence using a multivariate GARCH model. Pak. Dev. Rev. 43(4), 585–603 (2004)CrossRefGoogle Scholar
  35. 35.
    Khan, M.A., Sajid, M.Z.: Integration of financial markets in SAARC countries: evidence based on uncovered interest rate parity hypothesis. Kashmir Econ. Rev. 16(1), 1–16 (2007)Google Scholar
  36. 36.
    King, M., Wadhwani, S.: Transmission of volatility between stock markets. Rev. Financ. Stud. 1(3), 5–33 (1990)CrossRefGoogle Scholar
  37. 37.
    Laeven, L., Valencia, F.: Systemic banking crises: a new database. Working Paper, unpublished, International Monetary Fund, Washington (2008)Google Scholar
  38. 38.
    Lee, H., Liao, T., Huang, Y., Huang, T.: Dynamic spillovers between oil and stock markets: new approaches at spillover index. Int. J. Financ. Res. 6(2), 2015 (2015)Google Scholar
  39. 39.
    Mukherji, Ronit: Stock market efficiency in developing economies. J. Appl. Econ. Res. 9(4), 402–429 (2015)Google Scholar
  40. 40.
    Mukulu, Sandra, Hettihewa, Samanthala, Wright, Christopher S.: Financial contagion: an empirical investigation of the relationship between financial-stress indexes of Australia and the US. J. Appl. Bus. Econ. 16(3), 2014 (2014)Google Scholar
  41. 41.
    Neaime, S.: Volatilities in emerging MENA stock markets. Thunderbird Int. Bus. Rev. 48(4), 455–484 (2006)CrossRefGoogle Scholar
  42. 42.
    Neaime, S.: The global financial crisis, financial linkages and correlations in returns and volatilities in emerging MENA stock markets. Emerg. Mark. Rev. 13(3), 268–288 (2012)CrossRefGoogle Scholar
  43. 43.
    Qayyum, A., Kemal, A.R.: Volatility spillover between the stock market and the foreign exchange market in Pakistan. MPRA paper 1715. University Library of Munich, Germany (2006)Google Scholar
  44. 44.
    Riman1, H.B., Offiong, A.I., Egbe, I.E.: Effect of volatility transmission on domestic stock returns: evidence from nigeria. J. Int. Bus. Econ. 2, 189–219 (2014)Google Scholar
  45. 45.
    Singh, P., Kumar, B., Pandey, A.: Price and volatility spillovers across North American, European, and Asian stock markets. Int. Rev. Financ. Anal. 19, 55–64 (2010)CrossRefGoogle Scholar
  46. 46.
    Wang, Z., Yang, J., Bessler, D.A.: Financial crisis and African stock market integration. Appl. Econ. Lett. 10, 527–533 (2003)CrossRefGoogle Scholar
  47. 47.
    Yilmaz, K.: Return and volatility spillovers among the East Asian equity markets. J. Asian Econ. 21, 304–313 (2010).  https://doi.org/10.1016/j.asieco.2009.09.001CrossRefGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  • Zulfiqar Ali Shah
    • 1
  • Muhammad Ejaz Majeed
    • 1
  • Biagio Simonetti
    • 2
    Email author
  • Corrado Crocetta
    • 3
  1. 1.International Islamic UniversityIslamabadPakistan
  2. 2.University of SannioSannioItaly
  3. 3.University of FoggiaFoggiaItaly

Personalised recommendations