Intra- and Inter-Regional Spillovers between Emerging Capital Markets Around the World

Abstract

In this paper, returns and volatility spillovers between emerging capital markets of Central and Eastern Europe, Latin America, and South-East Asia are investigated. We extend the existing empirical evidence on financial spillovers by distinguishing between linkages among countries located in one region (intra-regional spillovers) and among countries located in different regions (inter-regional spillovers) after controlling for shocks originating at home and on the world market. Both intra- and inter-regional spillovers are found to be significant, with the former being more pronounced than the latter for all three regions considered. Our findings indicate that linkages between emerging markets are not solely due to their common dependence on the global capital market and highlight the importance of common factors in intra-regional stock return behavior.

Keywords: Return and volatility linkages, emerging markets, financial integration

JEL Classification: C32, F30, F36, G15