Harjum Muharam

Faculty of Economics and Business, Universitas Diponegoro,

Indonesia 

hardjum@gmail.com

Volatility spillovers under difference in the degree of market integration: Evidence from the selected Asian and Eastern European stock markets

Wisnu Mawardi

Faculty of Economics and Business, Universitas Diponegoro,

Indonesia 

wisnumawardi@gmail.com

Erman Denny Arfinto

Faculty of Economics and Business, Universitas Diponegoro,

Indonesia 

erman.denny@gmail.com

Najmudin

Faculty of Economics and Business,Universitas Jenderal Soedirman, 

Indonesia

kuliah_najmudin@yahoo.co.id

Abstract. This research aims to investigate volatility transmitted from the world market to ten Asian and Eastern European stock markets and from major stock market in the region to the rest of stock markets by considering their degree of integrations. To assess this, we apply GARCH(p,q) model and involve dynamic conditional correlation (DCC) model to generate the dynamic degree of integration. The monthly market indices data over the period from May 2002 to March 2018 are taken from 11 markets -- 5 Asian ones (China, Indonesia, Malaysia, Pakistan, and the Philippines), 5 Eastern European (Czech Republic, Poland, Romania, Russia, and Ukraine), and the world market data. Furthermore, the volatility spillover was analysed during the global financial crisis period, from May 1, 2008 to May 29, 2009. The findings show that volatility spillovers from the world and the major regional markets to domestic stock markets are conditional on the degree of integrations. Specifically, there is no volatility spillover from the world and regional major markets on segmented stock markets. In contrast, domestic stock markets which are integrated could experience the volatility spillover. Moreover, this confirms for both crisis circumstances and the overall period.

Received: September, 2018

1st Revision: October, 2018

Accepted: January, 2019

DOI: 10.14254/2071-8330.2019/12-1/9

JEL Classification: F36, G15, C10

Keywords: volatility spillover, dynamic integration, GARCH model