An Influence of Global Energy Index and Global Material Index Volatility in Asia Two Stock Markets: Empirical Study of Taiwan and Singapore Markets

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1 December 16 Inernaional eview of anagemen and usiness esearch An Influence of Global Energy Index and Global aerial Index Volailiy in Asia Two Sock arkes: Empirical Sudy of Taiwan and Singapore arkes WANN-JYI HONG Deparmen of Hospial and Healh Care Adminisraion, Chia Nan Universiy of Pharmacy & Science, No. 6, Erh-Jen d., Sec.1, Jen-Te, Tainan, 717, Taiwan. Tel: ex.5 CHING-HUEI CHEN Deparmen of Hospial and Healh Care Adminisraion, Chia Nan Universiy of Pharmacy & Science, No. 6, Erh-Jen d., Sec.1, Jen-Te, Tainan, 717, Taiwan. Tel: ex.58 JUI-CHEN CHANG Deparmen of Finance & Insiue of Financial anagemen, Nanhua Universiy, Chia-Yi, Taiwan juichen@mail.nhu.edu.w Tel: ex.51 Absrac The empirical resuls show ha he proposed model is appropriae in evaluaing he relaionship of he Taiwan s and he Singapore s sock markes. The empirical resul also indicaes ha he Taiwan s and he Singapore s sock markes is a posiive relaion. The average esimaion value of correlaion coefficien equals o.5597, which implies ha he wo sock markes is synchronized influence. esides, he empirical resul also shows ha he Taiwan s and he Singapore s sock markes have an asymmerical effec. The volailiy of he Taiwan and he Singapore sock markes receives he influence of he posiive and negaive values of he global energy index and he global maerial index volailiy. For examples, under he good news of global energy index and he global maerial index markes, he empirical resul shows ha he variaion risk of Taiwan sock marke will affec he variaion risk of he Singapore sock marke. And he variaion risk of he Singapore will also affec he variaion risk of he Taiwan sock marke. Under he good news of he global energy index and he global maerial index, he variaion risk of he Taiwan s sock marke is larger han he variaion risk of Singapore s sock marke. Key Words: Sock arke, Asymmeric Effec, IGACH odel, AIGACH odel. Inroducion We know ha Singapore is one of Asian four dragons, also economy growh rae of Singapore in 13 is 4.4%, and he growh rae of he finance service rade is 7.7% in 14. Singapore is also one of global financial cener, and he Singapore is also he powerful global economic naion in he Asian. We also know ISSN: Horng, Chen & Chang (16) 144

2 December 16 Inernaional eview of anagemen and usiness esearch ha Taiwan is also one of Asian four dragons, Taiwan has a close relaionship wih he Singapore based on he sighseeing our. esides, Taiwan and Singapore have a close relaionship based on he rade and he circulaion of capial. When he invesor has an invesmen in he inernaional sock marke, he/she will usually care abou he inernaional capial he moion siuaion, he inernaional poliics and he economical siuaion change, in paricular, in he global energy index and he global maerial index marke changes. There is a close relaionship for Taiwan and Singapore based on he rade and he circulaion of capial wih he global energy index and he global maerial index markes, bu he global energy index and he global maerial index markes are also imporan index in he global economics. Therefore, he relaionship beween he Taiwan and he Singapore sock markes are worh furher discussion wih he facors of he global energy index and he global maerial index markes. The purpose of he presen paper is o examine he relaions of he Taiwan s and he Singapore s sock markes. This paper also furher discusses he affec of he global energy index and he global maerial index markes volailiy for he Taiwan and he Singapore sock markes. And he posiive and negaive values of global energy index and he global maerial index markes volailiy are used as he hreshold. The organizaion of his paper is as follows: Secion descibes he daa characerisics; Secion 3 presens he proposed model; Secion 4 presens he empirical resuls, and finally Secion summarizes he conclusions of his sudy. Daa Characerisics Daa Sources The daa of his research included he Taiwan, he Singapore, he global energy index and he global maerial index prices are colleced beween January, 6 and December, 14. The source of he sock daa was he Taiwan economic Journal (TEJ), a daabase in Taiwan. The Taiwan s sock price refers o he Taiwan weighed sock index, he Singapore s sock price refers o he Singapore Srai Times sock index, he global energy index price refers o SCI global energy index (USD), and he global maerial index price refers o he SCI global maerial index (USD). During he process of daa analysis, in case ha here was no sock marke price available on he side of he Taiwan and he Singapore sock marke or on he side of he global energy index and he global maerial index markes due o holidays, he idenical ime sock price daa from one side was deleed. Afer his, he four variables samples are,19. eurn Calculaion and asic Saisics To compue he reurn rae of he Taiwan sock marke adops he naural logarihm difference, rides again. The reurn rae of he Singapore sock marke also adops he naural logarihm difference, rides again. The reurn raes of he global energy index and he global maerial index price markes also adops he naural logarihm difference, rides again. In Figure 1, he Taiwan, he Singapore, he global energy index and he global maerial index markes shows he clusering phenomenon, so ha we may know he four markes have cerain relevance. Table 1 presens he four sequences kurosis coefficiens are all bigger han 3, which his resul implies ha he normal disribuion es of Jarque-era is no normal disribuion. Therefore, he heavy ails disribuion is used in his paper. And he four markes do have he high correlaion in Table. ISSN: Horng, Chen & Chang (16) 1443

3 December 16 Inernaional eview of anagemen and usiness esearch 8 TW SING GE 16 G Figure 1. Trend chars of he Taiwan, he Singapore, he global energy index and he global maerial index marke volailiy raes Table 1. Daa saisics Saisics TW SING GE G ean S-D Skew Kurosis J- N (p-value) (.) (.) (.) (.) Sample Noes: (1) J- N is he normal disribuion es of Jarque-era. () S-D is denoed he sandard deviaion. (3) denoe significance a he level 1%. Table. Uncondiional correlaion coefficien Coefficien TW SING GE G TW SING GE G Uni roo and co-inegraion ess This paper furher uses he uni roo es of KSS (Kapeanios e. al., 3) o deermine he sabiliy of he ime series daa. The KSS examinaion resul is lised in Table 3. I shows ha he Taiwan sock reurns, he Singapore sock reurns, he global energy index and he global maerial index reurns do no have he uni roo characerisic, his is, he four markes are saionary series daa, under 1% significance level. Using Johansen s (1991) co-inegraion es as illusraed in Table 4 a he significance level of.5 ( =5%) does no reveal of saisic. This indicaed ha he Taiwan sock marke, he Singapore sock max ISSN: Horng, Chen & Chang (16) 1444

4 December 16 Inernaional eview of anagemen and usiness esearch marke, he global energy index and he global maerial index markes do no have a co-inegraion relaion. Therefore, we do no need o consider he model of error correcion. Table 3. Uni oo es of KSS for he sudy daa KSS TW SING GE G Saisic Criical value Significan level =1% =5% =% *** Noes: denoe significance a he level 1%. H Table 4. Co-inegraion es ( Var Lag=5) Criical value None A mos A mos A mos Noes: The lag of VA is seleced by he AIC rule (Akaike, 1973). The criical value is given under he level 5%. ACH Effec es max ased on he formula (1) and () as below, we uses he mehods of L es (Engle, 198) and F es (Tsay, 4) o es he condiionally heeroskedasiciy phenomenon. In Table 5, he resuls of he ACH effec es show ha he wo sudy markes have he condiionally heeroskedasiciy phenomenon exiss. This resul suggess ha we can use he GACH model o mach and analyze i. Table 5. ACH effec es TW Engle L es Tsay F es Saisic (p-value) (.) (.) SING Engle L es Tsay F es Saisic (p-value) (.) (.) Noes: *** denoe significance a he level 1%. Proposed odel ased on he global energy index and he global maerial index markes will affec he reurn rae volailiy of he Taiwan and he Singapore sock markes, and he global energy index and he global maerial index markes do have he high correlaions for he Taiwan and he Singapore sock markes. We follows he idea of self-exciing hreshold auoregressive (SETA) model (Tsay, 1989), he idea of double hreshold GACH model (rooks, 1), and he ideas of he papers of Engle () and Tse & Tusi (), and uses he posiive and negaive value of global energy index and he global maerial index reurns volailiy rae is as a hreshold. Afer model process selecion, in his paper, we may use he bivariae asymmeric GACH (called AGACH) model o consruc he relaionships of he Taiwan s and he Singapore s sock marke reurns, he AGACH (1, 1) model is illusraed as follows: ISSN: Horng, Chen & Chang (16) 1445

5 December 16 Inernaional eview of anagemen and usiness esearch h, ( TW j j j3 GE j j4g j ) a1, TW SING ISSN: Horng, Chen & Chang (16) 1446 j, (1) SING 4 ( TW j jsing j j3 GE j j4g j ) a,, () = u ( a h a ), (3) h 4 u j, 1 j 1, 1, 1, 1 ( a h a ), (4), j, 1 j, 1, 1 j 1, 1 h 1, h, h,, (5) exp( q ) /(exp( q ) 1), (6) q a a h h, (7) 1 1 1, 1, 1 /, 1, 1 GE ; G 1 if u 1,, if ohers, (8) 1 if GE ; G u,,, if ohers (9) 1 if GE ; G u 3,,, if ohers () 1 if GE ; G u 4,,, if ohers () wih GE and G denoe good news, GE and G denoe bad news. The whie noise of a a, a ) is obey he bivariae Suden s disribuion, his is, a ( 1,, ~ T (,( v ) H / v), (1) v among (,) and H is he covariance marix of a a, a ) a, a, ( 1,,, and is he dynamic condiional correlaion coefficien of 1 and. The maximum likelihood algorihm mehod of HHH (ernd e. al., 1974) is used o esimae he model s unknown parameers. The programs of ATS and EVIEWS are used in his paper. Empirical esuls From he empirical resuls, we know ha he Taiwan s and he Singapore s sock reurn volailiy may be consruced on he DCC and he bivariae AIGACH (1, 1) model. Is esimae resul is saed in Table 6. The empirical resuls show ha he good news and bad news of he global energy index and he global maerial index reurns volailiy will produce he differen sock reurn raes on he Taiwan and he Singapore sock markes. And he sock reurn volailiies of he global energy index and he global maerial index will also affec he variaion risks of he Taiwan and he Singapore sock markes. The Taiwan sock

6 December 16 Inernaional eview of anagemen and usiness esearch reurn volailiy receives fis period s impac of he Taiwan sock reurn volailiy ( =-.94). The Taiwan sock reurn does no also receive before wo period s impac of he Singapore sock reurn volailiy. The Taiwan sock reurn receives firs period s impac of he global energy index reurn volailiy ( 13 =.13). The Taiwan sock reurn does no receive nd period s impac of he global energy index reurn volailiy. The Taiwan sock reurn volailiy also receives before wo period s impac of he global maerial index reurn volailiy ( 14 =.161 and 4 =.546). The Singapore sock reurn volailiy receives before 1 period s impac of he Taiwan sock reurn volailiy ( =-.85). And he Singapore sock reurn volailiy does no receive nd period s impac of he Taiwan sock reurn volailiy. The Singapore sock reurn volailiy also receives before 1 period s impac of he global energy index reurn volailiy ( 13 =.94). The Singapore sock reurn does no receive nd period s impac of he global energy index reurn volailiy raes. The Singapore sock reurn volailiy also receives before wo period s impac of he global maerial index reurn volailiy ( 14 =.144 and 4 =.587). The sock reurn volailiies of he global energy index and he global maerial index are also ruly influen he reurn volailiy of he Taiwan and he Singapore sock markes. On he oher hand, he correlaion coefficien average esimaion value ( ˆ =.5597) of he Taiwan and he Singapore sock reurn volailiy is significan. This resul also shows he Taiwan and he Singapore sock reurn s volailiy is muually synchronized influence. In addiional, esimaed value of he degree of freedom for he Suden s disribuion is , and is significan under he significance level of.1( 1% ). This also demonsraes ha his research daa has he heavy ailed disribuion. Table 6. Parameer esimaion of he DCC and he bivariae AIGACH(1, 1) model Parameers Coefficien (p-value) (.) (.9) (.537) (.) (.) 3 4 Parameers 1 Coefficien (p-value) (.1618) (.7714) (.866) (.49) (.8) Parameers Coefficien (p-value) (.1) (.6) (.) (.) (.444) 3 4 Parameers Coefficien (p-value) (.173) (.577) (.86) (.) (.3) 1 1 Parameers Coefficien (p-value) (.) (.588) (.583) (.65) (.) 3 Parameers 1 Coefficien (p-value) (.74) (. 1) (.18) (.) (.163) Parameers 4 Coefficien (p-value) (.68) (.679) (.) (.18) (.14) ISSN: Horng, Chen & Chang (16) 1447

7 December 16 Inernaional eview of anagemen and usiness esearch 1 Parameers Coefficien (p-value) (.) (.) (.356) (.9381) (.53) 1 3 Parameers 1 Coefficien (p-value) (.) (.7973) (.6868) (.1) (.) 4 Parameers Coefficien (p-value) (.7754) (.6) (.) (.) (.737) 1 Parameers Coefficien (p-value) (.) (.) (.17) (.) (.) Parameers min max Coefficien..784 (p-value) Noes:p-value< denoes significance. ( =1%, =5%). min denoes he minimum and max denoes he maximum. From he Table 6, he esimaed coefficiens of he condiional variance equaion will produce he differen variaion risks under he bad news and good news in Taiwan and Singapore sock markes. The empirical resuls show ha he Taiwan sock marke conforms he condiionally supposiion of he AIGACH model. The empirical resuls also show ha he Singapore sock marke reurn is he AIGACH model. This resul also demonsraes he DCC and he bivariae AIGACH (1, 1) model may cach he Taiwan and he Singapore sock reurn volailiies process. Under he bad news of he global energy and he global maerial indices, he empirical resul shows ha he Taiwan and Singapore sock markes have he fixed variaion risk. In Table 6, he Taiwan and he Singapore sock marke reurns have he differen condiional variaion risks. This resul demonsraes ha he good news and bad news of he global energy index and he global maerial index markes will produce he differen variaion risks on he Taiwan and he Singapore sock markes. Under he good news of he global energy index and he global maerial index, he variaion risk of he Taiwan s sock marke is larger han he variaion risk of Singapore s sock marke. Under he GE (bad news) and G (bad news), he empirical resul shows ha he variaion risk of he Taiwan sock marke is larger han he variaion risk of he Singapore sock marke. esides, under he GE (good news) and G ISSN: Horng, Chen & Chang (16) 1448 (good news), he empirical resul also shows ha he variaion risk of Taiwan sock marke will affec he variaion risk of he Singapore sock marke. And he variaion risk of he Singapore will also affec he variaion risk of he Taiwan sock marke. Therefore, he explanaory abiliy of he DCC and he bivariae AIGACH (1, 1) model is beer han he radiional model of he bivariae GACH (1, 1). To es he inappropriaeness of he DCC and he bivariae AIGACH (1, 1) model, he es mehod of Ljung & ox (1978) is used o examine auocorrelaion of he sandard residual error. This proposed model does no show an auocorrelaion of he sandard residual error. Therefore, he DCC and he bivariae AIGACH (1, 1) model are more appropriae. Conclusions The empirical resuls show ha he Taiwan sock marke reurn s volailiy does have an asymmeric effec and he Singapore sock marke reurn s volailiy does also have an asymmeric effec. The Taiwan and he v

8 December 16 Inernaional eview of anagemen and usiness esearch Singapore sock marke volailiies may consruc in he DCC and he bivariae AIGACH (1, 1) model wih a posiive (good news) and negaive (bad news) hreshold of he global energy index and he global maerial index reurn volailiies. From he empirical resul also obains ha he dynamic condiional correlaion coefficiens average esimaion value ( =.5597) of he Taiwan and he Singapore sock reurn volailiy is posiive. The posiive and negaive values of he global energy index and he global maerial index reurn volailiy affecs he sock reurn volailiy raes of he Taiwan and he Singapore sock markes. The Taiwan and he Singapore sock marke reurns are ruly received he impac of he global energy index and he global maerial index volailiies. For examples, under he good news of he global energy index and he global maerial index markes, he variaion risk of he Taiwan sock marke is larger han he variaion risk of he Singapore sock marke. Under he GE and G, he empirical resul shows ha he variaion risk of he Singapore sock marke is larger han he variaion risk of he Taiwan sock marke. esides, under he GE and G, he empirical resul also shows ha he variaion risk of Taiwan sock marke will affec he variaion risk of he Singapore sock marke. And he variaion risk of he Singapore will also affec he variaion risk of he Taiwan sock marke. Under he good news of global energy index and he global maerial index markes, he empirical resul also shows ha he Taiwan and he Singapore sock markes can reduce he fixed variaion risk. eferences Kapeanios, G., Shin, Y. & Snell, A. 3. Tesing for a uni roo in he nonlinear STA framework. Journal of Economerics, (), Johansen, S Esimaion and hypohesis esing of coinegraion vecor in Gaussian vecor auoregressive models. Economerica, 5, Engle,.F Auoregressive condiional heeroskedasiciy wih esimaes of he variance of Unied Kingdom Inflaion. Economerica, 5, Tsay,.S. 4. Analysis of Financial Time Series, New York: John Wiley & Sons, Inc. Akaike, H Informaion heory and an exension of he maximum likelihood principle. In nd. Inernaional Symposium on Informaion Theory, edied by. N. Perov and F. C. udapes: Akademiai Kiado, Engle,.F. & V. K. Ng, V.K easuring and esing he impac of news on volailiy. Journal of Finance, 48(5), Tsay,.S Tesing and modeling hreshold auoregressive processes. Journal of he American Saisical Associaion, 84, -4. rooks, C. 1. A double-hreshold GACH model for he French Franc / Deuschmark exchange rae. Journal of Forecasing,, Engle,.F.. Dynamic condiional correlaion- a simple class of mulivariae GACH models. Journal of usiness and Economic Saisics,, Tse, Y.K. & Tsui, Alber K.C.. A mulivariae GACH model wih ime-varying correlaions. Journal of usiness & Economic Saisics,, ernd, E.K., Hall,.H., Hall,.E. & Hausman, J.A Esimaion and inference in nonlinear srucural models. Annals of Economic and Social easuremen, 4, Ljung, G.. & ox, G.E.P On a measure of lack of fi in ime series models. iomerika, 65(), ISSN: Horng, Chen & Chang (16) 1449