Modelling volatility spillovers from the US equity market to ASEAN stock markets

Abstract

An important aspect of increased international financial integration is the associated increase in volatility spillover. Analyzing volatility spillovers from advanced economies to emerging economies is clearly important for portfolio investment and risk management. This paper investigates volatility spillovers from the US equity market to stock markets of ASEAN economies. We use the augmented EGARCH model with the ICSS algorithm to control for the excessive volatility break over an extended period. We document a significant volatility spillover from the US to ASEAN equity markets and this finding is vital to investors. The paper has strong practical importance because an accurate prediction of volatility spillovers in international equity markets is crucial for mitigating portfolio risk.