Information leadership in advanced asia-pacific stock markets: returns and volatility correlations, spillovers and the role of public information from the US and Japan

Abstract

This paper investigates the nature of market linkages amongst the U.S. stock market and the advanced Asia-Pacific stock markets of Australia, Hong Kong, Japan and Singapore for the period 2 January 1991 to 31 May 1999. The market linkages are firstly investigated by examining the returns and volatility correlations amongst the five markets. The correlations are found to be significant and they are considerably higher in the post-1997 Asian crisis period than the earlier period. Secondly, the nature of information leadership of the U.S. and Japan in the region is investigated by investigating the presence of the spillover effects from the U.S. and the Japanese markets. Although significant returns and volatility spillover effects from the U.S. market are found in all countries, the Japanese market spillovers are relevant in only some of the countries. Thirdly, the U.S. and Japanese information leadership via the spillover effects of public information releases from the U.S. and Japan are considered. In general, various economic data announcements from these two major markets elicited significant first and second moment influence in the returns of other markets. There is also strong evidence that markets responded differently to good/bad economic announcements which is an indication that the information contents of each economic announcements are the source of tradable information rather than an act of information release. In sum, market linkages in the region are found to be strong and growing and the information leaderships of the U.S. and Japan are found to be strongly present in the region.