Correlations and volatility spillover from China to Asian and Latin American Countries: Identifying diversification and hedging opportunities

Figures & data

Figure 1. Time series plots of China, India, Brazil, Mexico and Indonesia.

Table 1. Summary statistics for daily returns

Statistics on series	DLSSE	DLBSE	DLJKSE	DLBVSP	DLMEXICAN
Observations	4661	4661	4661	4661	4661
Sample Mean	0.016	0.043	0.047	0.04	0.037
Minimum	−9.256	−11.809	−11.306	−14.566	−8.389
Maximum	9.401	15.99	7.623	13.677	10.441
Median	0.031	0.08	0.11	0.059	0.065
Variance	2.563	2.18	1.811	3.228	1.733
t-Statistic (Mean = 0)	0.681	2.01	2.375	1.503	1.923
Skewness	−0.326	−0.222	−0.684	−0.144	−0.076
Kurtosis (excess)	5.063	8.19	6.984	4.481	5.789
Jarque-Bera	5060.679	13,064.07	9835.935	3915.018	6513.139
ADF Test	0.010***	0.010***	0.010***	0.010***	0.010***
ARCH- LM Test	0.000***	0.000***	0.000***	0.000***	0.000***

Figure 2. Plots of daily returns.

Table 2. Correlation between daily returns

	R_SSE	R_BSE	R_JKSE	R_BVSP	R_MEXICAN
R_SSE	1.00
R_BSE	0.05	1.00
R_JKSE	0.02	0.10	1.00
R_BVSP	0.02	0.05	0.04	1.00
R_MEXICAN	0.01	0.05	0.06	0.18	1.00

Table 3. VARMA (1,1)- MGARCH(1,1) parameter estimates

	BEKK		Diagonal		CCC		DCC
Panel A: Mean equation
Variable	Coeff	Signif	Coeff	Signif	Coeff	Signif	Coeff	Signif
Mean model (DLSSE)
Constant	0.015	0.512	0.023	0.000***	0.013	0.793	0.001	0.000***
DLSSE{1}	0.029	0.016***	0.039	0.000***	0.031	0.959	0.053	0.000***
DLBSE{1}	−0.009	0.360	0.010	0.000***	0.006	0.987	0.000	0.000***
DLJKSE{1}	0.020	0.044***	0.038	0.000***	0.035	0.689	0.039	0.000***
DLBVSP{1}	0.019	0.029***	0.019	0.824	0.024	0.872	0.026	0.000***
DLMEXICAN{1}	0.016	0.160	0.010	0.940	0.012	0.863	0.028	0.000***
Mean model (DLBSE)
Constant	0.069	0.000***	0.075	0.191	0.084	0.849	0.085	0.000***
DLSSE{1}	0.015	0.037***	0.010	0.764	0.004	0.993	0.001	0.000***
DLBSE{1}	0.066	0.000***	0.065	0.000***	0.064	0.887	0.063	0.000***
DLJKSE{1}	0.040	0.000***	0.049	0.079	0.042	0.938	0.001	0.000***
DLBVSP{1}	0.028	0.000***	0.026	0.401	0.019	0.398	0.023	0.000***
DLMEXICAN{1}	0.062	0.000***	0.046	0.000***	0.051	0.862	0.035	0.000***
Mean model (DLJKSE)
Constant	0.068	0.000***	0.077	0.000***	0.010	1.000	0.101	0.000***
DLSSE{1}	0.017	0.124	0.014	0.165	0.041	0.850	0.000	0.000***
DLBSE{1}	0.035	0.001***	0.035	0.003***	0.085	0.926	0.035	0.000***
DLJKSE{1}	0.077	0.000***	0.093	0.000***	0.019	0.839	0.082	0.000***
DLBVSP{1}	0.017	0.038***	0.007	0.441	0.025	0.972	0.011	0.000***
DLMEXICAN{1}	−0.002	0.895	−0.015	0.554	0.083	0.917	−0.022	0.000***
Mean model (DLBVSP)
Constant	0.047	0.117	0.053	0.006***	0.058	0.694	0.069	0.000***
DLSSE{1}	−0.008	0.559	0.003	0.827	−0.016	0.907	0.017	0.000***
DLBSE{1}	0.041	0.002***	0.052	0.005***	0.038	0.770	0.078	0.000***
DLJKSE{1}	0.079	0.000***	0.099	0.000***	0.089	0.659	0.067	0.000***
DLBVSP{1}	−0.028	0.006***	−0.008	0.551	−0.012	0.961	0.000	0.270
DLMEXICAN{1}	0.004	0.778	−0.019	0.598	0.011	0.991	−0.016	0.000***
Mean model (DLMEXICAN)
Constant	0.039	0.021***	0.045	0.002***	0.053	0.486	0.050	0.000***
DLSSE{1}	0.018	0.069	0.020	0.04***	0.006	0.990	0.019	0.000***
DLBSE{1}	0.017	0.078	0.015	0.145	0.016	0.735	0.040	0.000***
DLJKSE{1}	0.02	0.046***	0.030	0.017***	0.031	0.891	0.011	0.000***
DLBVSP{1}	0.003	0.718	−0.001	0.862	0.005	0.898	0.000	0.000***
DLMEXICAN{1}	0.06	0.000***	0.072	0.000***	0.094	0.949	0.049	0.000***
Panel B: Variance equation
$c_{11}$	0.123	0.000***	0.118	0.000***	0.463	0.912	0.796	0.000***
$c_{21}$	0.014	0.439
$c_{22}$	0.041	0.067	−0.129	0.000***	−0.074	0.358	0.400	0.000***
$c_{31}$	0.032	0.346
$c_{32}$	0.093	0.514
$c_{33}$	0.217	0.000***	0.002	0.574	0.127	0.950	0.120	0.000***
$c_{41}$	−0.064	0.172
$c_{42}$	0.075	0.193
$c_{43}$	−0.144	0.078
$c_{44}$	0.189	0.019***	0.433	0.000***	0.476	0.024***	0.674	0.000***
$c_{51}$	−0.008	0.720
$c_{52}$	0.013	0.747
$c_{53}$	0.049	0.603
$c_{54}$	−0.115	0.003***
$c_{55}$	0	0.999	0.103	0.000***	0.131	0.920	0.100	0.000***
${\alpha }_{11}$	0.198	0.000***	0.223	0.000***	0.238	0.838	0.126	0.000***
${\alpha }_{12}$	0.024	0.091	−0.013	0.000***	0.031	0.951	−0.010	0.000***
${\alpha }_{13}$	0.011	0.488	0.017	0.000***	0.012	0.993	0.020	0.000***
${\alpha }_{14}$	0.002	0.916	0.011	0.000***	−0.007	0.993	0.012	0.000***
${\alpha }_{15}$	−0.008	0.488	−0.009	0.000***	0.018	0.949	−0.017	0.000***
${\alpha }_{21}$	−0.013	0.326	0.001	0.148	0.032	0.966	0.031	0.000***
${\alpha }_{22}$	0.148	0.000***	0.068	0.000***	0.240	0.307	0.179	0.000***
${\alpha }_{23}$	0.076	0.021***	−0.021	0.000***	−0.013	0.992	0.091	0.000***
${\alpha }_{24}$	0.027	0.300	−0.005	0.000***	0.010	0.832	0.047	0.000***
${\alpha }_{25}$	0.004	0.856	0.002	0.461	0.019	0.991	0.084	0.000***
${\alpha }_{31}$	0	0.985	0.001	0.506	0.014	0.963	0.028	0.000***
${\alpha }_{32}$	0.021	0.367	0.017	0.002***	0.034	0.995	0.059	0.000***
${\alpha }_{33}$	0.318	0.000***	0.242	0.000***	0.262	0.395	0.103	0.000***
${\alpha }_{34}$	−0.079	0.000***	0.018	0.000***	0.009	0.976	0.038	0.000***
${\alpha }_{35}$	0.015	0.766	−0.008	0.408	−0.027	0.645	0.026	0.000***
${\alpha }_{41}$	−0.017	0.084	−0.001	0.760	0.014	0.980	0.001	0.000***
${\alpha }_{42}$	−0.006	0.589	−0.003	0.804	−0.019	0.994	0.063	0.000***
${\alpha }_{43}$	−0.005	0.751	−0.017	0.074	0.018	0.970	0.055	0.000***
${\alpha }_{44}$	0.168	0.000***	0.076	0.000***	0.108	0.994	0.095	0.000***
${\alpha }_{45}$	−0.023	0.380	−0.021	0.000***	0.059	0.850	0.063	0.000***
${\alpha }_{51}$	0.024	0.090	−0.001	0.332	0.016	0.923	0.001	0.000***
${\alpha }_{52}$	0.019	0.225	−0.006	0.420	0.020	0.975	0.029	0.000***
${\alpha }_{53}$	0.035	0.162	0.001	0.733	−0.011	0.991	0.000	0.000***
${\alpha }_{54}$	−0.011	0.749	−0.003	0.006***	−0.006	0.977	0.041	0.000***
${\alpha }_{55}$	0.207	0.000***	0.139	0.000***	0.195	0.749	0.122	0.000***
${\beta }_{11}$	0.977	0.000***	0.776	0.000***	0.519	0.753	0.472	0.000***
${\beta }_{12}$	−0.006	0.132	0.092	0.000***	0.053	0.956	0.013	0.000***
${\beta }_{13}$	0	0.919	0.017	0.000***	0.004	0.999	0.039	0.000***
${\beta }_{14}$	−0.002	0.705	−0.084	0.000***	0.023	0.996	0.000	0.276
${\beta }_{15}$	0.001	0.711	0.025	0.000***	−0.073	0.929	0.028	0.000***
${\beta }_{21}$	0.002	0.224	−0.005	0.000***	−0.040	0.968	−0.121	0.000***
${\beta }_{22}$	0.989	0.000***	0.702	0.000***	0.560	0.760	0.550	0.000***
${\beta }_{23}$	−0.006	0.363	0.105	0.000***	0.159	0.819	−0.039	0.000***
${\beta }_{24}$	−0.004	0.448	0.097	0.000***	0.036	0.982	−0.013	0.000***
${\beta }_{25}$	−0.005	0.322	0.099	0.000***	0.110	0.914	0.051	0.000***
${\beta }_{31}$	−0.006	0.525	0.042	0.000***	−0.009	0.990	−0.029	0.000***
${\beta }_{32}$	−0.013	0.204	0.077	0.000***	0.063	0.956	0.026	0.000***
${\beta }_{33}$	0.929	0.000***	0.506	0.000***	0.548	0.774	0.663	0.000***
${\beta }_{34}$	0.045	0.003***	0.045	0.000***	0.004	0.974	−0.022	0.000***
${\beta }_{35}$	−0.014	0.721	0.005	0.380	0.052	0.602	0.017	0.000***
${\beta }_{41}$	0.008	0.003***	−0.034	0.000***	−0.057	0.970	0.001	0.000***
${\beta }_{42}$	0	0.892	0.303	0.001***	0.151	0.941	0.060	0.000***
${\beta }_{43}$	−0.001	0.895	0.208	0.000***	0.120	0.961	−0.015	0.000***
${\beta }_{44}$	0.971	0.000***	0.479	0.011***	0.486	0.806	0.490	0.000***
${\beta }_{45}$	0.017	0.000***	0.087	0.000***	0.147	0.933	0.109	0.000***
${\beta }_{51}$	−0.006	0.135	0.000	0.498	−0.037	0.881	−0.018	0.000***
${\beta }_{52}$	0.002	0.669	0.176	0.000***	0.063	0.931	0.017	0.000***
${\beta }_{53}$	−0.004	0.719	−0.030	0.000***	0.018	0.982	0.048	0.000***
${\beta }_{54}$	0.001	0.862	−0.006	0.014***	0.011	0.978	0.000	0.000***
${\beta }_{55}$	0.97	0.000***	0.625	0.000***	0.647	0.651	0.654	0.000***
$R_{21}$					0.030	0.871
$R_{31}$					0.009	0.975
$R_{32}$					0.051	0.895
$R_{41}$					0.024	0.804
$R_{42}$					0.041	0.883
$R_{43}$					0.035	0.857
$R_{51}$					−0.002	0.857
$R_{52}$					0.039	0.859
$R_{53}$					0.058	0.932
$R_{54}$					0.163	0.795
${\alpha }_{DCC}$							0.000	0.000***
${\beta }_{DCC}$							−0.050	0.874

Note: *** denotes significance at the 0.05 level.

Table 4. Hedge ratio (long/short) summary statistics

Series	Mean	St. Dev.	Min	Max
SSE/BSE	0.0600	0.0200	−0.0300	0.4800
SSE/JKS	0.0200	0.0100	−0.0400	0.1200
SSE/BVS	0.0100	0.0100	−0.0400	0.0900
SSE/MEX	0.0100	0.0100	−0.1300	0.0900
BSE/SSE	0.0400	0.0500	−0.0400	3.0200
BSE/JKS	0.1000	0.0100	−0.0300	0.2100
BSE/BVS	0.0300	0.0100	−0.0800	0.3400
BSE/MEX	0.0500	0.0100	−0.0400	0.1800
JKS/SSE	0.0100	0.0100	−0.0900	0.3600
JKS/BSE	0.0800	0.0200	−0.0200	0.5800
JKS/BVS	0.0200	0.0100	−0.0500	0.1500
JKS/MEX	0.0600	0.0100	−0.0200	0.2100
BVS/SSE	0.0200	0.0100	−0.0500	0.3600
BVS/BSE	0.0500	0.0100	−0.1000	0.3000
BVS/JKS	0.0500	0.0100	−0.1000	0.2000
BVS/MEX	0.2500	0.0400	0.0900	0.3600
MEX/SSE	0.0100	0.0100	−0.1200	0.1200
MEX/BSE	0.0400	0.0100	−0.0300	0.2200
MEX/JKS	0.0600	0.0100	−0.0300	0.1300
MEX/BVS	0.1200	0.0200	0.0500	0.2400

Table 5. Portfolio weights summary statistics

Series	Mean	St. Dev.	Min	Max
SSE/BSE	0.43	0.14	0	1
SSE/JKS	0.38	0.12	0.16	1
SSE/BVS	0.55	0.1	0.09	1
SSE/MEX	0.37	0.13	0.07	1
BSE/JKS	0.45	0.07	0.25	0.99
BSE/BVS	0.63	0.08	0.27	0.99
BSE/MEX	0.44	0.07	0.17	0.97
JKS/BVS	0.67	0.08	0.28	0.84
JKS/MEX	0.49	0.08	0.14	0.77
BVS/MEX	0.29	0.07	0.14	0.59