Does the Us it Stock Market Dominate Other it Stock Markets: Evidence from Multivariate GARCH Model
19 Pages Posted: 15 Aug 2006
Date Written: July 2006
Taking a very important role in modern production and management, information technology (IT) becomes a major drive for economic growth to speed up the global economy integration since the 1990s. Due to the leading position of the IT industry of the United States, its IT stock market is thus believed to have driven up the IT stock markets in other countries. To verify this argument, in this paper we adopt a multivariate GARCH model of Baba et al. (1990) to investigate the linkages between the IT stock market of the United States and several non-U.S. IT markets, namely, Japan, France, Canada, Finland, Sweden and Hong Kong. Our findings reveal that the U.S. IT market does not play a dominant role in the mean spillover effect in the sense that the U.S. IT market contributes a mean spillover effect to only a few other IT markets but some other IT markets also generate significant mean spillover effects to the U.S. IT market. However, we show that the U.S. IT market plays a leading role in the world in terms of volatility that it creates strong volatility spillover effects to all other IT stock markets except Canada. In addition, our analysis of the dynamic path of correlation coefficients infers that during the formation, spread and collapse of the IT bubble, the relations between U.S. and non-U.S. IT markets are strong but their relations weaken after the burst of the IT bubble.
Keywords: Volatility, Information Technology, Stock markets, Multivariate GARCH, IT Bubble
JEL Classification: F3, G12, G15
Suggested Citation: Suggested Citation