Market integration and volatility spillover across major East Asian stock and Bitcoin markets: an empirical assessment

Abstract

Purpose

This paper aims to provide new perspectives on the integration of East Asian stock markets and the dynamic volatility transmission to the Bitcoin market utilising daily data from 2014 to 2020.

Design/methodology/approach

The authors undertake comprehensive analyses of the dependency dynamics, systemic risk and volatility spillover between major East Asian stock and Bitcoin markets. The authors employ a vine-copula-CoVaR framework and a VAR-BEKK-GARCH method with a Wald test.

Findings

(a) With exception of KS11 and N225; HSI and SSE; HSI and KS11, which have moderate dependence, dependencies among other markets are low. In terms of tail risk, the upper tail risk is more significant in capturing strong common variation. (b) Two-way and asymmetric risk spillover effects exist in all markets. The Hong Kong and Japanese stock markets have significant risk spillovers to other markets, and quite notably, the Chinese stock market is the largest recipient of systemic risk. However, the authors observe a more significant risk spillover from the Chinese stock market to the Bitcoin market. (c) The VAR-BEKK-GARCH results confirm that the Korean market is a significant emitter of volatility spillovers. The Bitcoin market does provide diversification benefits. Interestingly, the Chinese stock market has an intriguing relationship with Bitcoin. (d) An increase in spillovers in East Asia boosts spillovers to Bitcoin, but there is no intuitive effect of Bitcoin spillovers on East Asian spillovers.

Originality/value

For the first time, the authors examine the dynamic linkage between Bitcoin and the major East Asian stock markets.

Citation

Zeng, H. and Ahmed, A.D. (2023), "Market integration and volatility spillover across major East Asian stock and Bitcoin markets: an empirical assessment", International Journal of Managerial Finance, Vol. 19 No. 4, pp. 772-802. https://doi.org/10.1108/IJMF-03-2021-0161