Dynamic transmissions between main stock markets and SME stock markets

Evidence from tropical economies

Trang Nguyen, Taha Chaiechi, Lynne Eagle, David Low

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper investigates the dynamic return and asymmetric volatility transmissions between main stock markets and Small and Medium Enterprise (SME) stock markets in Hong Kong, Singapore, Thailand, and Malaysia under the joint impacts of volatility breaks, thin trading, and trading volume. For the analysis, a linear state-space AR model with Kalman filter and an augmented bivariate VAR asymmetric BEKK-GARCH model were adopted. The results reveal that only Hong Kong showed evidence of return transmission from the SME market to the main market. Controlling for the joint effects of the three factors considerably reduced the magnitude and significance level of this return transmission and, in essence, eliminates the volatility transmission. Moreover, Hong Kong's main market return exhibited a causal relationship and a long-run equilibrium relationship with the country's economic development. Therefore, the SME market arguably can make an indirect contribution to economic development in Hong Kong via its return transmission across the main market. Consequently, any policies that facilitate the development of the SME market in this country would promote long-term economic stimulation indirectly through its transmission mechanism with the main market.

Original languageEnglish
JournalQuarterly Review of Economics and Finance
DOIs
Publication statusE-pub ahead of print - 23 Mar 2019
Externally publishedYes

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Stock market
Small and medium-sized enterprises
Hong Kong
Volatility transmission
Economic development
Thailand
Asymmetric GARCH model
Asymmetric volatility
Singapore
Kalman filter
Long-run equilibrium
Transmission mechanism
Malaysia
Thin trading
Trading volume
Market returns
Factors
State space
Economics
Return volatility

Cite this

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title = "Dynamic transmissions between main stock markets and SME stock markets: Evidence from tropical economies",
abstract = "This paper investigates the dynamic return and asymmetric volatility transmissions between main stock markets and Small and Medium Enterprise (SME) stock markets in Hong Kong, Singapore, Thailand, and Malaysia under the joint impacts of volatility breaks, thin trading, and trading volume. For the analysis, a linear state-space AR model with Kalman filter and an augmented bivariate VAR asymmetric BEKK-GARCH model were adopted. The results reveal that only Hong Kong showed evidence of return transmission from the SME market to the main market. Controlling for the joint effects of the three factors considerably reduced the magnitude and significance level of this return transmission and, in essence, eliminates the volatility transmission. Moreover, Hong Kong's main market return exhibited a causal relationship and a long-run equilibrium relationship with the country's economic development. Therefore, the SME market arguably can make an indirect contribution to economic development in Hong Kong via its return transmission across the main market. Consequently, any policies that facilitate the development of the SME market in this country would promote long-term economic stimulation indirectly through its transmission mechanism with the main market.",
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Dynamic transmissions between main stock markets and SME stock markets : Evidence from tropical economies. / Nguyen, Trang; Chaiechi, Taha; Eagle, Lynne; Low, David.

In: Quarterly Review of Economics and Finance, 23.03.2019.

Research output: Contribution to journalArticleResearchpeer-review

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AU - Low, David

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AB - This paper investigates the dynamic return and asymmetric volatility transmissions between main stock markets and Small and Medium Enterprise (SME) stock markets in Hong Kong, Singapore, Thailand, and Malaysia under the joint impacts of volatility breaks, thin trading, and trading volume. For the analysis, a linear state-space AR model with Kalman filter and an augmented bivariate VAR asymmetric BEKK-GARCH model were adopted. The results reveal that only Hong Kong showed evidence of return transmission from the SME market to the main market. Controlling for the joint effects of the three factors considerably reduced the magnitude and significance level of this return transmission and, in essence, eliminates the volatility transmission. Moreover, Hong Kong's main market return exhibited a causal relationship and a long-run equilibrium relationship with the country's economic development. Therefore, the SME market arguably can make an indirect contribution to economic development in Hong Kong via its return transmission across the main market. Consequently, any policies that facilitate the development of the SME market in this country would promote long-term economic stimulation indirectly through its transmission mechanism with the main market.

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