ASYMMETRIC VOLATILITY TRANSMISSION IN INTERNATIONAL STOCK MARKETS

The transmission mechanism of price and volatility spillovers across t he New York, Tokyo and London stock markets is investigated. The asymm etric impact of good news (market advances) and bad news (market decli nes) on volatility transmission is described by an extended multivaria te Exponential Generalized Autoregressive Conditionally Heteroskedasti c (EGARCH) model. Using daily open-to-close returns, we find strong ev idence that volatility spillovers in a given market are much more pron ounced when the news arriving from the last market to trade is bad. A before and after October 1987 crash analysis reveals that the linkages and interactions among the three markets have increased substantially in the post-crash era, suggesting that national markets have grown mo re interdependent.