The causal direction of equity returns volatility

Evidence from selected developed and emerging market's economies

Research output: Contribution to journalArticle

Abstract

This paper examines the causality directions of stock return volatility in selected developed (United States, Canada, Hong Kong, United Kingdom, Japan, France and Germany) and emerging market countries (Mexico and China) using daily data from January 2003 to March 2017. The study employes Granger Causality to identify the directions of causality between the markets. The findings revealed that there has been a mixed and strong indication of unidirectional and bidirectional causality between both the emerging and developed markets. The result illustrated that the developed countries act as a market leader especially during the pre, during and post crisis period, whereas the emerging countries act as a market follower. These results have significant implication for policy makers concerning the formulation of policy that could stabilize the economy, dwindle volatility and further contribute to the development of stock market. Besides, these findings could be necessity for the investors while making investment decisions that involves risk and also for hedgers to forecast risk and develop hedging strategies.

Original languageEnglish
Pages (from-to)249-261
Number of pages13
JournalInternational Journal of Economics and Management
Volume13
Issue number1
Publication statusPublished - 1 Jun 2019

Fingerprint

Return volatility
Emerging market economies
Equity returns
Causality
Japan
Stock return volatility
Politicians
Mexico
Emerging countries
Hong Kong
Canada
France
Germany
Follower
Hedging strategies
Developed countries
Emerging markets
Investors
Investment decision-making
Stock market

Keywords

  • Causality
  • Developed
  • Emerging
  • Stock market
  • Volatility

ASJC Scopus subject areas

  • Business and International Management
  • Economics, Econometrics and Finance(all)
  • Strategy and Management

Cite this

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abstract = "This paper examines the causality directions of stock return volatility in selected developed (United States, Canada, Hong Kong, United Kingdom, Japan, France and Germany) and emerging market countries (Mexico and China) using daily data from January 2003 to March 2017. The study employes Granger Causality to identify the directions of causality between the markets. The findings revealed that there has been a mixed and strong indication of unidirectional and bidirectional causality between both the emerging and developed markets. The result illustrated that the developed countries act as a market leader especially during the pre, during and post crisis period, whereas the emerging countries act as a market follower. These results have significant implication for policy makers concerning the formulation of policy that could stabilize the economy, dwindle volatility and further contribute to the development of stock market. Besides, these findings could be necessity for the investors while making investment decisions that involves risk and also for hedgers to forecast risk and develop hedging strategies.",
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