Volatility Spillover and Risk Measurement of Southeast Asian Financial Markets
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Abstract
Objective: this study aims to examine volatility transmission in ASEAN-5 financial markets during 2019–2023, covering pre-pandemic, pandemic, and post-pandemic phases, to analyze the impact of COVID-19 and other external factors, such as political crises and geopolitical tensions, on these interconnected markets. Methods: using AR-GARCH and VECM models, the study analyzed aggregated stock index data from the five countries, with a focus on volatility spillovers and value at risk (VaR) levels to assess both short- and long-term interdependencies. Results: the findings reveal substantial volatility transmission among ASEAN-5 markets, indicating significant financial interdependencies that heighten regional risk, especially during periods of global disruption. VaR results further suggest that the Indonesian stock market (JKSE) carries a higher risk profile, reflecting the impact of local economic conditions and regional interconnectivity. Conclusions: the study underscores the need for investors to account for volatility transmission in risk management, especially given the COVID-19 pandemic and geopolitical factors. Strong market interconnectivity within the ASEAN-5 may limit the effectiveness of cross-market diversification, highlighting the importance of regional risk mitigation and coordinated policies.
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Kesumah, F. S. D., & Azhar, R. (2025). Volatility Spillover and Risk Measurement of Southeast Asian Financial Markets. Brazilian Administration Review, 22(2), e240148. https://doi.org/10.1590/1807-7692bar2025240148
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Research Articles
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Tsay, R. S. (2014). Multivariate Time Series Analysis with R and Financial Applications (D. J. Balding, N. A. Cressie, G. M. Fitzmaurice, H. Goldstein, I. M. Johnstone, G. Molenberghs, D. W. Scott, A. F. Smith, R. S. Tsay, & S. Weisberg (eds.)). John Wiley & Sons.
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Zhou, W., Gu, Q., & Chen, J. (2021). From volatility spillover to risk spread: An empirical study focuses on renewable energy markets. Renewable Energy, 180, 329–342. https://doi.org/10.1016/j.renene.2021.08.083
Acharya, V. V., Pedersen, L. H., Philippon, T., & Richardson, M. (2017). Measuring systemic risk. Review of Financial Studies, 30(1), 2–47. https://doi.org/10.1093/rfs/hhw088
Adekoya, O. B., & Oliyide, J. A. (2021). How COVID-19 drives connectedness among commodity and financial markets: Evidence from TVP-VAR and causality-in-quantiles techniques. Resources Policy, 70(October 2020), 101898. https://doi.org/10.1016/j.resourpol.2020.101898
Ahadiat, A., & Kesumah, F. S. D. (2021). Risk Measurement and Stock Prices during the COVID-19 Pandemic: An Empirical Study of State-Owned Banks in Indonesia*. Journal of Asian Finance, 8(6). http://dx.doi.org/10.13106/jafeb.2021.vol8.no6.0819
Alexander, C. (2008). Market Risk Analysis: Quantitative Methods in Finance. John Wiley & Sons.
Bautista, R. S., & Mora, J. A. N. (2021). Value-at-risk predictive performance: a comparison between the CaViaR and GARCH models for the MILA and ASEAN-5 stock markets. Journal of Economics, Finance and Administrative Science, 26(52), 197–221. https://doi.org/10.1108/JEFAS-03-2021-0009
Bodea, C., & Hicks, R. (2015). International Finance and Central Bank Independence: Institutional Diffusion and the Flow and Cost of Capital. The Journal of Politics, 77(1), 268–284. https://doi.org/10.1086/678987
Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroskedasticity. Journal of Econometrics, 31(1), 307–327. https://doi.org/10.1109/TNN.2007.902962
Boonyakunakorn, P., Pastpipatkul, P., & Sriboonchitta, S. (2019). Value at risk of the stock market in asean-5. In Studies in Computational Intelligence (Vol. 809). Springer International Publishing. https://doi.org/10.1007/978-3-030-04200-4_33
Bouri, E., Jain, A., Biswal, P. C., & Roubaud, D. (2017). Cointegration and nonlinear causality amongst gold, oil, and the Indian stock market: Evidence from implied volatility indices. Resources Policy, 52(February), 201–206. https://doi.org/10.1016/j.resourpol.2017.03.003
Chen, Y. H., Hsu, I. C., & Lin, C. C. (2010). Website attributes that increase consumer purchase intention: A conjoint analysis. Journal of Business Research, 63, 1007–1014. https://doi.org/10.1016/j.jbusres.2009.01.023
Chuang, A., & Wei, W. W. S. (1991). Time Series Analysis: Univariate and Multivariate Methods. In Technometrics, 33(1), 108). https://doi.org/10.2307/1269015
Danila, N. (2023). Spillover of volatility among financial instruments: ASEAN-5 and GCC market study. PLoS ONE, 18(10 October), 1–21. https://doi.org/10.1371/journal.pone.0292958
Darinda, D., & Permana, F. C. (2019). Volatility Spillover Effects In Asean-5 Stock Market: Does The Different Oil Price Era Change The Pattern? Kajian Ekonomi Dan Keuangan, 3(2), 116–134. https://doi.org/10.31685/kek.v3i2.484
Diebold, F. X., & Yilmaz, K. (2009). Measuring Financial Asset Return and Volatility Spillovers, With Application To Global Equity Markets. The Economic Journal, 119, 158–171. http://www.nber.org/papers/w13811
Engle, R. F. (1982). Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation. Econometrica, 50(4), 987. https://doi.org/10.2307/1912773
Engle, R. F., & Bollerslev, T. (1986). Modelling the persistence of conditional variances. Econometric Reviews, 5(1), 1–50. https://doi.org/10.1080/07474938608800095
Engle, R. F., & Manganelli, S. (2004). CAViaR: Conditional autoregressive value at risk by regression quantiles. Journal of Business and Economic Statistics, 22(4), 367–381. https://doi.org/10.1198/073500104000000370
Hair, J. F., Jr., Black, W. C., Babin, B. J., & Anderson, R. E. (2014). Multivariate Data Analysis (Pearson Ne). Pearson Education Limited.
Hamzah, L. M., Nabilah, S. U., Russel, E., Usman, M., Virginia, E., & Wamiliana. (2020). Dynamic Modelling and Forecasting of Data Export of Agricultural Commodity by Vector Autoregressive Model. Journal of Southwest Jiaotong University, 55(3). https://doi.org/10.35741/issn.0258-2724.55.3.41
Horvath, R., & Petrovski, D. (2013). International stock market integration: Central and south eastern europe compared. Economic Systems, 37(1), 81–91. https://doi.org/10.1016/j.ecosys.2012.07.004
Hull, J. C. (2015). Risk Management and Financial Institutions. John Wiley & Sons.
Jebabli, I., Kouaissah, N., & Arouri, M. (2022). Volatility spillovers between stock and energy markets during crises: A comparative assessment between the 2008 Global Financial Crisis and the Covid-19 Pandemic Crisis. Finance Research Letters, 46(July), 102363. https://doi.org/10.1016/j.frl.2021.102363
Jovanović, M. N., & Lipsey, R. G. (2006). International economic integration: Limits and prospects. In International Economic Integration: Limits and Prospects. https://doi.org/10.4324/9780203019894
Lamine, A., Jeribi, A., & Fakhfakh, T. (2024). Spillovers between cryptocurrencies, gold and stock markets: implication for hedging strategies and portfolio diversification under the COVID-19 pandemic. Journal of Economics, Finance and Administrative Science, 29(57), 21–41. https://doi.org/10.1108/JEFAS-09-2021-0173
Liu, F., Umair, M., & Gao, J. (2023). Assessing oil price volatility co-movement with stock market volatility through quantile regression approach. Resources Policy, 81, 103375. https://doi.org/10.1016/J.RESOURPOL.2023.103375
Liu, Y., Wei, Y., Wang, Q., & Liu, Y. (2022). International stock market risk contagion during the COVID-19 pandemic. Finance Research Letters, 45(February 2021), 102145. https://doi.org/10.1016/j.frl.2021.102145
Mensi, W., Hammoudeh, S., Nguyen, D. K., & Kang, S. H. (2016). Global financial crisis and spillover effects among the U.S. and BRICS stock markets. International Review of Economics and Finance, 42, 257–276. https://doi.org/10.1016/j.iref.2015.11.005
Mensi, W., Reboredo, J. C., & Ugolini, A. (2021). Price-switching spillovers between gold, oil, and stock markets: Evidence from the USA and China during the COVID-19 pandemic. Resources Policy, 73(July), 102217. https://doi.org/10.1016/j.resourpol.2021.102217
Munthe, S. (2017). Strategi Implementasi Sistem Ekonomi Islam Dalam Menghadapi Masyarakat Ekonomi Asean (Mea). Jurnal Perspektif Ekonomi Darussalam, 1(2), 98–123. https://jurnal.usk.ac.id/JPED/article/view/6548/5365
Nelson, D. B. (1991). Conditional Heteroskedasticity in Asset Returns : A New Approach. Econometrica, 59(2), 347–370. https://doi.org/10.2307/2938260
Oetomo, B., Achsani, N. A., & Sartono, B. (2016). Forecasting Market Risk in ASEAN-5 Indices using Normal and Cornish-Fisher Value at Risk. Research Journal of Finance and Accounting, 7(18), 28–38. https://iiste.org/Journals/index.php/RJFA/article/view/33289
Owen, A., Finenko, A., & Tao, J. (2019). Power Interconnection in Southeast Asia (1st Editio). Routledge. https://doi.org/https://doi.org/10.4324/9780429424526
Purbasari, I. (2019). Volatility spillover effects from the US and Japan to the ASEAN-5 Markets and among the ASEAN-5 markets. Sains: Jurnal Manajemen Dan Bisnis, 11(2), 293. https://doi.org/10.35448/jmb.v11i2.6064
Shrydeh, N., Shahateet, M., Mohammad, S., & Sumadi, M. (2019). The hedging effectiveness of gold against US stocks in a post-financial crisis era. Cogent Economics and Finance, 7(1). https://doi.org/10.1080/23322039.2019.1698268
Singh, N. P., & Joshi, N. (2019). Investigating Gold Investment as an Inflationary Hedge. Business Perspectives and Research, 7(1), 30–41. https://doi.org/10.1177/2278533718800178
Sumani, S., & Saadah, S. (2019). Watch Your Neighbor: A Volatility Spillover in ASEAN-5 Stock Exchange. Binus Business Review, 10(1), 59–65. https://doi.org/10.21512/bbr.v10i1.5400
Tsay, R. S. (2005). Analysis of Financial Time Series Second Edition. In Business (Vol. 543, Issue 3). https://doi.org/10.1002/0471264105
Tsay, R. S. (2014). Multivariate Time Series Analysis with R and Financial Applications (D. J. Balding, N. A. Cressie, G. M. Fitzmaurice, H. Goldstein, I. M. Johnstone, G. Molenberghs, D. W. Scott, A. F. Smith, R. S. Tsay, & S. Weisberg (eds.)). John Wiley & Sons.
Winantyo, R., Saputra, R. D., Fitriani, S., Morena, R., Kosotali, A., Saichu, G., Rohmadyati, U., Sholihah, Rachmanto, A., & Gandara, D. (2008). Masyarakat Ekonomi ASEAN (MEA) 2015 - Memperkuat Sinergi ASEAN di Tengah Kompetisi Global. PT Elex Media Komputindo.
Yahoo Finance. (2024). World Indices. https://finance.yahoo.com/markets/world-indices/
Zhou, W., Gu, Q., & Chen, J. (2021). From volatility spillover to risk spread: An empirical study focuses on renewable energy markets. Renewable Energy, 180, 329–342. https://doi.org/10.1016/j.renene.2021.08.083