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An Analysis of Volatility Spillover and Contagion Effects to the Frontier Markets

Huq, Umma Rumana LU (2015) NEKN02 20151
Department of Economics
Abstract
This thesis investigates the volatility spillover and contagion effects to the frontier markets from the developed markets and emerging markets and tries to identify if there exists any potential volatility effect which may have impact on the investment decision of these markets. In view of the growing globalization, financial markets become increasingly interdependent and the chances for the volatility transmission of one market to another increase, the implication of which is particularly crucial for international portfolio diversification alternatives. The data spans from January 2002 to December 2012 and uses stock market index data from two developed markets, two emerging markets and four frontier markets to study the impact of the... (More)
This thesis investigates the volatility spillover and contagion effects to the frontier markets from the developed markets and emerging markets and tries to identify if there exists any potential volatility effect which may have impact on the investment decision of these markets. In view of the growing globalization, financial markets become increasingly interdependent and the chances for the volatility transmission of one market to another increase, the implication of which is particularly crucial for international portfolio diversification alternatives. The data spans from January 2002 to December 2012 and uses stock market index data from two developed markets, two emerging markets and four frontier markets to study the impact of the global financial crisis of USA. The entire sample is divided into two sub-sample periods. The analysis basically employs a CGARCH(1,1) model, along with cointegration, Granger Causality, cross-country correlations and a VAR framework. This study provides evidence about interdependence and long run equilibrium relationship between the frontier markets and developed & emerging markets. According to Granger Causality, the return dependency is unidirectional and causality comes from the developed and emerging markets to frontier markets. But according to the CGARCH analysis volatility spillover and contagion effects were found bi-directional, from Japan, China and India to Vietnam and from Argentina and Vietnam to India, during and after the global financial crisis. By analyzing the short run volatility of the targeted markets for the whole sample, we have found that short run volatility spillover mainly transmitted from developed and emerging markets to frontier markets. In this research we have also found negative volatility spillover effects from Argentina to China, from USA and Japan to Bangladesh and from Nigeria to India. So frontier markets could be thought of some good hedging opportunities. (Less)
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author
Huq, Umma Rumana LU
supervisor
organization
course
NEKN02 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
Volatility Spillover, Contagion effects, Frontier markets, CGARCH, Financial Crisis
language
English
id
5473889
date added to LUP
2015-06-29 13:23:00
date last changed
2015-06-29 13:23:00
@misc{5473889,
  abstract     = {This thesis investigates the volatility spillover and contagion effects to the frontier markets from the developed markets and emerging markets and tries to identify if there exists any potential volatility effect which may have impact on the investment decision of these markets. In view of the growing globalization, financial markets become increasingly interdependent and the chances for the volatility transmission of one market to another increase, the implication of which is particularly crucial for international portfolio diversification alternatives. The data spans from January 2002 to December 2012 and uses stock market index data from two developed markets, two emerging markets and four frontier markets to study the impact of the global financial crisis of USA. The entire sample is divided into two sub-sample periods. The analysis basically employs a CGARCH(1,1) model, along with cointegration, Granger Causality, cross-country correlations and a VAR framework. This study provides evidence about interdependence and long run equilibrium relationship between the frontier markets and developed & emerging markets. According to Granger Causality, the return dependency is unidirectional and causality comes from the developed and emerging markets to frontier markets. But according to the CGARCH analysis volatility spillover and contagion effects were found bi-directional, from Japan, China and India to Vietnam and from Argentina and Vietnam to India, during and after the global financial crisis. By analyzing the short run volatility of the targeted markets for the whole sample, we have found that short run volatility spillover mainly transmitted from developed and emerging markets to frontier markets. In this research we have also found negative volatility spillover effects from Argentina to China, from USA and Japan to Bangladesh and from Nigeria to India. So frontier markets could be thought of some good hedging opportunities.},
  author       = {Huq, Umma Rumana},
  keyword      = {Volatility Spillover,Contagion effects,Frontier markets,CGARCH,Financial Crisis},
  language     = {eng},
  note         = {Student Paper},
  title        = {An Analysis of Volatility Spillover and Contagion Effects to the Frontier Markets},
  year         = {2015},
}