Return and Volatility Transmissions in Asia’s Top Emerging Economies

This paper applies the Autoregressive Moving Average-Exponential General Autoregressive Conditional Heteroskedasticity (ARMA-EGARCH) in studying the spillover and leverage effects of returns and volatilities of China’s Shanghai Stock Exchange (SSE) index, India’s Bombay Stock Exchange index (BSE), Malaysia’s Kuala Lumpur Stock Exchange (KLSE) index, and the Philippine Stock Exchange (PSE) index. Results show that the leverage effects term is negative in all emerging stock market indices, except for Malaysia, which means that the Malaysian financial market is relatively stable. This paper also finds bilateral positive returns and volatility transmissions between BSE and the PSE index, which can be attributed to the established bilateral trade relations between the two countries. The BSE is found to also have a higher volatility effect on the KLSE index over the SSE, which can be attributed to the more established trade relations between India and Malaysia. Lastly, the PSE index’s one-way positive volatility spillover effect on the SSE index is attributed to the higher Philippine investments in China compared to China’s investments in the Philippines.