Mario G. Reyes

Asymmetric volatility spillover in the Tokyo stock exchange

This paper examines volatility transfers between size-based stock indexes from the Tokyo Stock Exchange. We use a bivariate EGARCH model to test for volatility spillover effects between large- and small-cap stock indexes. We find an asymmetric volatility spillover from large-cap stock returns to small-cap returns, but not vice versa. We also find a small-firm January effect, but not a June seasonality, in either large-and small-cap stock returns. Instead, we find that the conditional correlation between large- and small-cap indexes is time-varying, showing a tendency to increase during the month of June.(JEL G12, G15)

Size, time-varying beta, and conditional heteroscedasticity in UK stock returns

Abstract The purpose of this study is to examine the relationship between firm size and time-varying betas of UK stocks. We extend the Schwert and Seguin (1990) ( Journal of Finance 45 , 1120–1155) methodology by explicitly modeling conditional heteroscedasticity in the market model residual returns. Our results show that the time-varying coefficient is not statistically significant for both small and large firm stock indexes. We also find that accounting for GARCH effects in the Schwert-Seguin market model yields beta estimates that are markedly differently from those when conditional heteroscedasticity is ignored. Event studies that ignore conditional heteroscedasticity may bias the abnormal returns of small and large firms, thereby leading to a different conclusion regarding the significance of an information event.

Price Effects of Stock Market Liberalization in Taiwan

In January 1991, the Taiwan stock Market was partially opened to direct investment by foreign investors. This paper examines the stock price effects of this market liberalization. We use the GARCH methodology to investigate the impact of stock-market liberalization on the distribution of stock returns yielded by the Taiwan Weighted Index over the period 1988-1994. The results show that Taiwans stock market liberalization has induced some changes in the returns distribution. More importantly, the volatility of stock returns is lower post-liberalization.

The temporal relationship between large- and small-capitalization stock returns:: Evidence from the UK

Abstract In this study, we provide some evidence of Granger-causal transmission of information to the correlation between large- and small-cap stock indexes in the UK. We employ the bivariate Logistic Exponential Generalized Autoregressive Conditional Heteroscedasticity (LEGARCH) specification proposed by Darbar and Deb [Darbar, S. M., & Deb, P. (1999). Linkages among asset markets in the United States—tests in a bivariate GARCH framework . IMF Working Paper WP/99/158; Darbar, S. M., & Deb, P. (2000). Transmission of information and cross-market correlations. Indiana University–Purdue University Indianapolis Working Paper.] and document correlation persistence, and a two-way information flow. More specifically, information to the large-cap stock index positively affects its next period correlation with the small-cap index, whereas information to the small-cap index negatively affects its next period correlation with the large-cap index. We also find evidence supporting the presence of both a January effect and an April effect in both small-cap and large-cap returns.

Index futures trading and stock price volatility: Evidence from Denmark and France

This study uses an EGARCH methodology to investigate the impact of index futures trading on the price volatility of two European stock markets. The results show that index futures trading has changed the distribution of stock returns in Denmark and France, however, it has not increased stock price volatility. There is evidence that futures trading has dampened stock price fluctuations in France. The results further show that stocks in Denmark and France exhibit strong volatility persistence and asymmetry, especially during the post-futures period.