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Transmission of stock returns and volatility : The case of Korea

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Frame of Image ally significant lagged volatility spillovers from Korea to the U.S. but not from the U.S. to Korea. This paper also finds that statistically significant lagged return spillovers do not exist in neither the Korean nor the U.S. stock markets. Thus, that domestic market efficiently adjusts to foreign information holds even for an emerging market. Finally, this paper finds that when KOSPI returns measured in U.S. dollars are used, statistically significant lagged return spillovers exist from the U.S. to Korea but not from Korea to the U.S. This paper concludes that the lagged return spillovers with returns measured in U.S. dollars may result from the way the Korean government has intervened in the KRW/USD foreign exchange market. JEL classification: G15 Keywords: Spillover, Stock Returns, Volatility, GARCH.
* KDI School of Public Policy and Management and Korea Development Institute, P.O. Box 113, Chong-Nyang, Seoul 130-012, South Korea. Phone: (822) 958-4122, Fax: (822) 958-4088, E-mail: smhahm@kdischool.ac.kr
1. Introduction
With increased globalization of financial markets, investors in a given market incorporate into their financial decisions not just their own domestic information but the information of foreign financial markets. The extent of international financial integration has received much attention in recent years. For example, dividing daily close-to-close returns into daytime and overnight returns, Hamao, Masulis, and Ng (1990) study the short run interdependence


Full Text
Title Transmission of stock returns and volatility
Similar Titles
Sub Title

The case of Korea

Material Type Reports
Author(English)

Hahm, Sang-Moon

Publisher

Seoul:KDI school of Public Policy and Management

Date 2003
Pages 21
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding KDI; KDI School

Abstract

The extent of international financial integration among the developed economies has been well documented in the literature. This paper examines whether there are lagged spillovers in return and
volatility between the U.S. and Korea, an emerging economy, for a sample period including the financial crisis of 1977. Using open-to-close KOSPI and S&P 500 returns, this paper finds statistically significant lagged volatility spillovers from Korea to the U.S. but not from the U.S. to Korea. This paper also finds that statistically significant lagged return spillovers do not exist in neither the Korean nor the U.S. stock markets. Thus, that domestic market efficiently adjusts to foreign information holds even for an emerging market. Finally, this paper finds that when KOSPI returns measured in U.S. dollars are used, statistically significant lagged return spillovers exist from the U.S. to Korea but not from Korea to the U.S. This paper concludes that the lagged return spillovers with returns measured in U.S. dollars may result from the way the Korean government has intervened in the KRW/USD foreign exchange market.