Price and Volatility Spillovers in the Case of Stock Markets Located in Different Time Zones

Abstract

This paper investigates the interdependence of price volatility across the U.S. stock market and two emerging markets: Poland and Hungary. Using daily data for countries located in different time zones, we point out the problems caused by the presence of nonsynchronous trading effects. To address this problem we use open-to-close logarithmic returns of major stock market indexes. The asymmetric impact of good and bad news is described by a multivariate exponential general autoregressive conditional heteroskedastic model. We investigate the sample from May 2004 to December 2011. The evidence is that the U.S. prices spill over to other markets. Our results show no pronounced volatility spillovers among the three examined markets. Moreover, we observe the presence of negative asymmetry in the case of all markets.

Keywords:

• asymmetry effect
• market friction
• multivariate EGARCH model. nonsynchronous trading
• price and volatility spillovers