The effects from the United States and Japan to emerging stock markets in Asia and Vietnam

Science & Technology Development Journal – Economics - Law and Management, 3(4):440-450
Open Access Full Text Article Research Article
University of Economics and Law,
VNUHCM
Correspondence
Nguyen Thi Ngan, University of
Economics and Law, VNUHCM
Email: ngannt@uel.edu.vn
History
 Received: 17/3/2017
 Accepted: 20/11/2019
 Published: 31/12/2019
DOI : 10.32508/stdjelm.v3i4.586
Copyright
© VNU-HCM Press. This is an open-
access article distributed under the
terms of the Creative Commons
Attribution 4.0 International license.
The effects from the United States and Japan to emerging stock
markets in Asia and Vietnam
Nguyen Thi Ngan*, Nguyen Thi DiemHien, Hoang Trung Nghia
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ABSTRACT
The subprime mortgage crisis in the United States (U.S.) in mid-2008 suggests that stock prices
volatility do spillover from one market to another after international stock markets downturn. The
purpose of this paper is to examine the magnitude of return and volatility spillovers from devel-
oped markets (the U.S. and Japan) to eight emerging equity markets (India, China, Indonesia, Ko-
rea, Malaysia, the Philippines, Taiwan, Thailand) and Vietnam. Employing a mean and volatility
spillover model that deals with the U.S. and Japan shocks and day effects as exogenous variables
in ARMA(1,1), GARCH(1,1) for Asian emerging markets, the study finds some interesting findings.
Firstly, the day effect is present on six out of nine studied markets, except for the Indian, Taiwanese
and Philippine. Secondly, the results of return spillover confirm significant spillover effects across
the markets with different magnitudes. Specifically, the U.S. exerts a stronger influence on the
Malaysian, Philippine and Vietnamesemarket comparedwith Japan. In contrast, Japan has a higher
spillover effect on the Chinese, Indian, Korea, and Thailand than the U.S. For the Indonesianmarket,
the return effect is equal. Finally, there is no evidence of a volatility effect of the U.S. and Japanese
markets on the Asian emerging markets in this study.
Key words: Spillover, emerging markets, volatility effect, day effect
INTRODUCTION
In recent years, the world — especially developing
countries — experienced a strong capital liberaliza-
tion, financial market reform and advances in in-
formation technology. Consequently, information
transmits across global financial markets more freely
than ever, resulting in an increased linkage between
stock markets. It has been found that the deeper the
level of global financial integration, the more likely it
is that financial markets of developing countries are
affected by volatility spillover effects from mature fi-
nancial markets. The latest financial turmoil began
from U.S. in 2007 and spread to Asian markets in
the early of 2008 through different mechanisms, such
as increasing market volatility or market and fund-
ing illiquidity 1. Following that crisis, Asian financial
markets became highly volatile and shook violently.
This means that there is an increase in the linkage be-
tween the Asian stock markets and the US market.
Due to its size and economic importance in the world,
theU.S. potential impact on emergingmarkets cannot
be denied. Likewise, Japan as a major investor and
trading partner of many Asian countries is expected
to exert its influenced on these markets. Japan is the
world’s fourth largest stock exchange in terms of ag-
gregate market capitalization of listed companies, and
the largest in Asia. Japanese investors also hold a large
amount of Asian assets 2. Thus, the relationship be-
tween Japanese and Asianmarkets has become an im-
portant factor for investors and trade.
The volatility transmissions between stock markets
have been the object of study of both practitioners and
academia over the years. Understanding the level of
correlations between stock markets would be a great
help to investors and hedgers in their international
portfolio diversification and optimization. A plenty
of studies provided evidence for the spillover effects
from the U.S. and Japan to other stock markets. This
paper attempts to empirically examine the level of
spillover effects from these two large mature mar-
kets on eight Asian emerging and Vietnamese stock
markets. The ARMA(1,1)-GARCH(1,1) is utilized.
In particular, the return spillover are modelled using
ARMA(1,1), volatility spillover is estimated using a
two-step GARCH (1,1) model. The data of this study
is from 2000 to 2017, covering the period prior, dur-
ing, and after the global financial crisis in 2007. This
extensive coverage lends credibility to the results of
this analysis. The empirical results in this research
may be helpful for academics, domestic policy mak-
ers and professionals in understanding themagnitude
of volatility spillover effects of the U.S. and Japanese
stock markets on the Asian emerging stock markets.
Cite this article : Thi Ngan N, Thi Diem Hien N, Trung Nghia H. The effects from the United States and 
Japan to emerging stock markets in Asia and Vietnam. Sci. Tech. Dev. J. - Eco. Law Manag.; 3(4):440-450.
440
Science & Technology Development Journal – Economics - Law and Management, 3(4):440-450
Moreover, this study contributes to the growing litera-
ture on the spillover effects and volatility transmission
of equity returns.
The remainder of the paper is organized as follows. A
literature review on the study of return and volatility
spillover across markets is presented in the next sec-
tion. Section Methodology gives details about the fi-
nancial model for estimating volatility transmissions
and spillover effects and as well as estimation proce-
dure. Research data and the descriptive statistics are
provided in Section Data. The empirical results are
given in Section Empirical Results and finally, in the
last chapter, the paper closes with concluding com-
m ... valuate the serial cor-
relations in the raw and squared standardized residu-
als of the model up to lags 7 and 9 and find that most
of the conditional dependence in the return has been
modeled reasonably well.
DISCUSSION AND CONCLUSIONS
This paper focuses on investigating the transmission
volatility and spillover effects from the U.S. and Japan
445
Science & Technology Development Journal – Economics - Law and Management, 3(4):440-450
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Science & Technology Development Journal – Economics - Law and Management, 3(4):440-450
Figure 1: The daily returns of stock indices.
to eight Asian and Vietnamese stock markets by ex-
ploring the level of conditional correlations between
markets from January 1st , 2000 to May 31st , 2017
using ARMA(1,1)-GARCH(1,1) models. The results
provided interesting findings which contribute to the
understanding of the time-varying nature of mean
and volatility spillover effects between developed and
Asian emerging stock markets. We allow for mean
spillover effects by including residual of S&P500 and
Nikkei225 obtained from the equation (1) and in-
cluding the residual squares obtained from equation
(2) for S&P500 and Nikkei225 in variance equation
to capture the volatility transmission effects. The
results do not support the evidence of the day ef-
fect on all markets. For markets where the day ef-
fect, dummy variable has a negative sign and most
fall on Monday. We also found clear evidence that
the returns of the U.S. and Japan exert a positive in-
fluence on the returns on Asian markets. In addi-
tion, the cross-volatility spillover effect from the U.S.
and Japan returns is insignificant whereas the own-
volatility spillover effect from Asian returns itself are
highly significant.
These results are important for economic policy-
makers in order to safeguard the financial sector from
international financial shocks. The investors can use
this information for constructing efficient portfolios
to reduce risks and enhance returns.
The majority of recent studies of international prices
and volatility focus on the developed markets. Thus,
the present paper also contributes to the literature by
broadening the focus of the existing evidence. Further
research is necessary for investigating the mean and
volatility transmission through multivariate GARCH
(M-GARCH) models. The ability of capturing cross-
market spillovers increases with MARCH specifica-
tion because of its advantages.
ABBREVIATIONS
ARCH: Autoregressive Conditionally Heteroscedas-
tic
ARMA: Autoregressive–Moving-Average
GARCH: Generalized Autoregressive Conditionally
Heteroscedastic
LB: Ljung-Box
MSCI: Morgan Stanley Capital International
OLS: Ordinary Least Squares
TheU.S.: The United States
COMPETING INTERESTS
The authors declare that they have no conflicts of in-
terest.
448
Science & Technology Development Journal – Economics - Law and Management, 3(4):440-450
AUTHORS’ CONTRIBUTIONS
This research is conducted by Nguyen Thi Ngan,
Nguyen Thi Diem Hien and Hoang Trung Nghia, in
which NguyenThi Ngan is mainly responsible for this
research. Nguyen Thi Ngan is responsible for con-
ceiving and designing the analysis, contributing data
and analysis tools, performing the analysis and writ-
ing the paper. Nguyen Thi Diem Hien and Hoang
Trung Nghia are responsible for collecting data; in-
terpreting data and writing the paper.
ACKNOWLEDGMENTS
This result is funded by Vietnam National University
Ho ChiMinh City (VNU-HCM) under grant number
C2019-34-09.
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Tạp chí Phát triển Khoa học và Công nghệ – Kinh tế-Luật và Quản lý, 3(4):440-450
Open Access Full Text Article Bài Nghiên cứu
Trường ĐH Kinh tế - Luật, ĐHQGHCM
Liên hệ
Nguyễn Thị Ngân, Trường ĐH Kinh tế - Luật,
ĐHQG HCM
Email: ngannt@uel.edu.vn
Lịch sử
 Ngày nhận: 17/3/2017
 Ngày chấp nhận: 20/11/2019
 Ngày đăng: 31/12/2019
DOI : 10.32508/stdjelm.v3i4.586
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Tác động từ thị trường chứng khoánMỹ và Nhật Bản đến TTCK các
nướcmới nổi khu vực châu Á và Việt Nam
Nguyễn Thị Ngân*, Nguyễn Thị DiễmHiền, Hoàng Trung Nghĩa
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TÓM TẮT
Cuộc khủng hoảng 2007-2008 nổ ra ở Hoa Kỳ kéo theo sự lao dốc của các thị trường chứng khoán
các nước cho thấy tồn tại tác động lan truyền từ thị trường này sang thị trường khác. Mục tiêu của
bài nghiên cứu nhằm kiểm tra mức độ lan truyền trong tỷ suất lợi nhuận và độ biến động tỷ suất
lợi nhuận từ các thị trường chứng khoán phát triển (Hoa Kỳ và Nhật Bản) đến tám thị trường các
nước mới nổi (Ấn Độ, Trung Quốc, Indonesia, Hàn Quốc, Malaysia, Philippines, Đài Loan, Thái Lan)
và Việt Nam. Nghiên cứu sử dụng các biến ngoại sinh là cú sốc từ thị trường Mỹ và Nhật Bản và
hiệu ứng ngày trong mô hình ARMA(1,1)-GARCH(1,1) trên dữ liệu của các nước mới nổi khu vực
châu Á và Việt Nam nhằm đánh giá tác động lan truyền. Nghiên cứu đưa ra một số kết quả như
sau. Thứ nhất, hiệu ứng ngày tồn tại trên sáu trong số chín thị trường chứng khoán được nghiên
cứu, ngoại trừ Ấn Độ, Đài Loan và Philippines. Thứ hai, tồn tại tác động lan truyền trong tỷ suất lợi
nhuận giữa các thị trường với mức độ khác nhau, trong đó, Hoa Kỳ có tác động mạnh hơn đến thị
trường Malaysia, Philippines và Việt Nam; ngược lại, Nhật Bản có hiệu ứng lan truyền cao hơn đến
thị trường Trung Quốc, Ấn Độ, Hàn Quốc và Thái Lan; đối với thị trường Indonesia, hiệu ứng lan
truyền từ Hoa Kỳ và Nhật Bản là tương đương. Cuối cùng, nghiên cứu không tìm thấy bằng chứng
về hiệu ứng lan truyền trong độ biến động từ thị trường Hoa Kỳ và Nhật Bản đến các thị trường
mới nổi khu vực châu Á và Việt Nam...
Từkhoá: Tác động lan truyền, thị trườngmới nổi, tác động lan truyền độ, biến động, hiệu ứng ngày
Trích dẫn bài báo này: Ngân N T, Hiền N T D, Nghĩa H T. Tác động từ thị trường chứng khoán Mỹ và 
Nhật Bản đến TTCK các nước mới nổi khu vực châu Á và Việt Nam. Sci. Tech. Dev. J. - Eco. Law Manag.; 
3(4):440-450.
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