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The Impact of Sudden Changes on Long Memory Volatility Transmission between the Japanese and Korean Stock Markets

윤성민|강상훈
한국재무관리학회 (Korea Financial Management Association)|2014.09|재무관리연구 (THE KOREAN JOURNAL OF FINANCIAL MANAGEMENT)|제31권 제3호|pp. 1-21

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참고문헌

키워드

ICSS AlgorithmInformation TransmissionLong Memory VolatilitySudden ChangesFIGARCH-CCC Model
주제분류경영학

초록

This study assessed the impacts of sudden changes on long memory volatility, and then incorporated those impacts into the multivariate FIGARCH-CCC model to elucidate long memory volatility transmission between the Japanese and Korean stock markets. The principal objectives of this study were twofold: First, to detect sudden changes in volatility using the iterated cumulative sums of squared (ICSS) algorithms and evaluate the impact of sudden changes on volatility persistence using a univariate FIGARCH model. In particular, we examined whether the inclusion of sudden changes in the FIGARCH model reduces the degree of long memory. Second, this study took sudden changes into account to more accurately analyze volatility transmission between Japanese and Korean stock markets. Our findings indicate that ignoring sudden changes overestimates the extant degree of volatility transmission between the conditional variances of these stock markets. We conclude that ignoring the effects of sudden changes may cause misinterpretations in the degree of long memory volatility transmission between stock markets. These findings have important implications for building accurate asset price models, forecasting the volatility of stock returns, managing market capitalization, and further understanding information transmission mechanisms.

Abstract

This study assessed the impacts of sudden changes on long memory volatility, and then incorporated those impacts into the multivariate FIGARCH-CCC model to elucidate long memory volatility transmission between the Japanese and Korean stock markets. The principal objectives of this study were twofold: First, to detect sudden changes in volatility using the iterated cumulative sums of squared (ICSS) algorithms and evaluate the impact of sudden changes on volatility persistence using a univariate FIGARCH model. In particular, we examined whether the inclusion of sudden changes in the FIGARCH model reduces the degree of long memory. Second, this study took sudden changes into account to more accurately analyze volatility transmission between Japanese and Korean stock markets. Our findings indicate that ignoring sudden changes overestimates the extant degree of volatility transmission between the conditional variances of these stock markets. We conclude that ignoring the effects of sudden changes may cause misinterpretations in the degree of long memory volatility transmission between stock markets. These findings have important implications for building accurate asset price models, forecasting the volatility of stock returns, managing market capitalization, and further understanding information transmission mechanisms.

참고문헌 (35)

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