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Bidirectional volatility transmission between stocks and bond in East Asia – The quantile estimates based on wavelets

  • Dejan Živkov EMAIL logo , Jelena Kovačević , Biljana Stankov and Zoran Stefanović
Published/Copyright: February 7, 2022
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Studies in Nonlinear Dynamics & Econometrics
From the journal Studies in Nonlinear Dynamics & Econometrics Volume 27 Issue 1

Abstract

This paper investigates the volatility spillover effect between the national stock and bond markets in the five East Asian emerging countries. We use wavelet signal decomposing technique, GARCH models with different distribution functions and quantile regression. We find that the spillover effect is much higher in more turbulent times, than in calm periods, whereby this effect is stronger from stocks to 10Y bonds, than vice-versa, and it applies for all the countries. Using wavelet signals, we determine that, in most cases, the volatility transmission is higher in short-term horizon, than in midterm and long-term. The effect is stronger in countries with the less developed financial markets (Thailand, Indonesia and Malaysia) than in countries with more developed financial markets (China and Korea), and this is particularly evident in direction from stock to bond markets. Wavelet coherence indicates low volatility correlation in short time-horizons and relatively high correlation in midterm and long-term, which applies for all selected countries. Wavelet cross-correlation indicates that volatility spillover shocks predominantly transmit from bond markets to stock market in more developed China and Korea, whereas volatility shocks from stock market spill over towards bond market in less developed Thailand and Indonesia in very short-time horizon (2–4 days).

Keywords: East Asian emerging countries; GARCH; quantile regression; stocks and bonds; volatility transmission; wavelet
JEL Classification: C21; C63; D53
Corresponding author: Dejan Živkov, Novi Sad Business School, University of Novi Sad, Vladimira Perića Valtera 4, 21000, Novi Sad, Serbia, E-mail:

  1. Author contribution: All the authors have accepted responsibility for the entire content of this submitted manuscript and approved submission.

  2. Research funding: None declared.

  3. Conflict of interest statement: The authors declare no conflicts of interest regarding this article.

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Received: 2020-09-30
Revised: 2022-01-08
Accepted: 2022-01-24
Published Online: 2022-02-07

© 2022 Walter de Gruyter GmbH, Berlin/Boston

Articles in the same Issue

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  2. Research Articles
  3. Estimation and forecasting of long memory stochastic volatility models
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  5. Bidirectional volatility transmission between stocks and bond in East Asia – The quantile estimates based on wavelets
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https://doi.org/10.1515/snde-2020-0113
Keywords for this article
East Asian emerging countries; GARCH; quantile regression; stocks and bonds; volatility transmission; wavelet

Articles in the same Issue

  1. Frontmatter
  2. Research Articles
  3. Estimation and forecasting of long memory stochastic volatility models
  4. Uncertainty and realized jumps in the pound-dollar exchange rate: evidence from over one century of data
  5. Bidirectional volatility transmission between stocks and bond in East Asia – The quantile estimates based on wavelets
  6. A threshold model for the spread
  7. A Gini estimator for regression with autocorrelated errors
  8. State price density estimation with an application to the recovery theorem
  9. Testing for random coefficient autoregressive and stochastic unit root models
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