How volatile are East Asian stocks during high volatility periods?

Abstract

This study reports estimates of the magnitude of volatility during abnormal times relative to normal periods for seven East Asian economies using a rudimentary univariate Markov-switching ARCH method. The results show that global and regional events such as the 1990 Gulf War and the 1997 Asian currency crisis led to high volatility episodes whose magnitude relative to normal times differ from country to country. Country-specific events such as the opening up of country borders in the mid-1990s are also observed to lead to high volatility periods. Additional insights are obtained when volatility is assumed to evolve according to a three-state Markov regime switching process.

Acknowledgements

This paper was partially completed while the author was visiting the Institute for Mathematical Sciences, National University of Singapore and the Singapore Management University in 2004. The visit was jointly supported by the Institute and the Singapore Management University.

Notes

See Bollerslev et al. (1992) for a review.