Volatility and Causality in Asia Pacific Financial Markets

Abstract

The present paper analyses interactions between the foreign exchange, money and stock markets in Asian Pacific countries from 1999 till 2006. Considering influences on financial market volatility, the estimations are carried out in multivariate EGARCH models using structural residuals. This approach consequently allows the identification of the contemporaneous effects between the variables. Structural VARs or VECMs can therefore give answers to questions of exchange rate stabilisation, monetary policy behaviour or equity market reagibility. Additionally, a correlation analysis of the identified innovations reveals the degree of coherence in the Asian Pacific region.