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Please use this identifier to cite or link to this item: http://hdl.handle.net/2451/27882

Title: A MEM-based Analysis of Volatility Spillovers in East Asian Financial Markets
Authors: Engle, Robert
Gallo, Giampiero
Velucchi, Margherita
Issue Date: 9-Feb-2009
Series/Report no.: FIN-08-036
Abstract: Transmission mechanisms in financial markets reflect the degree of integration of capital markets, as well as the relative importance of real economies. Market volatility has components which may behave differently across quiet and turbulent periods, but appear to behave in similar ways from market to market. In this paper we suggest a Multiplicative Error Model (MEM) approach to study volatility spillovers among a set of markets, using as a proxy, the market daily range. We model the dynamics of the expected volatility of one market including interactions with the past daily ranges of other markets, building a fully interdependent model. We analyze eight East Asian markets in the period 1995-2006, devoting particular attention to the treatment of the 1997-1998 turbulent period. We find no evidence of independent markets while several interdependence relationships can be stressed. Hong Kong turns out to be the most important market while Taiwan seems to have suffered quite limited effects from the crisis. Impulse response functions and multiperiod forecast profiles are developed and suggest a build-up in the spillover effects.
URI: http://hdl.handle.net/2451/27882
Appears in Collections:Finance Working Papers

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