An Impact of the Canada and the U.K. Return Volatility on the Hong Kong and the Singapore Stock Market Returns: A DCC and Bivariate AIGARCH Model

This paper discusses the model construction and the association between the Hong Kong and the Singapore stock markets. The data period is from January 2001 to August 2010. The empirical results show that the dynamic conditional correlation (DCC) and the bivariate AIGARCH(1, 1) model are appropriate in evaluating the relationship of the Hong Kong and the Singapore stock markets. The empirical results also indicate that the Hong Kong and the Singapore stock markets are in a positive relation. The average estimation value of correlation coefficient equals 0.645, which implies that the two stock markets is synchronized influence. Besides, the empirical result also shows that the Hong Kong and the Singapore stock markets have an asymmetrical effect. The return volatility of the Hong Kong and the Singapore stock markets receives the influence of the positive and negative values of the Canada and the U.K. return volatility rates. The evidence might suggest that stock market investors or international fund manager must consider the Canada stock price return volatility risk and its close connection with the U.K. market while making investment decision on the Hong Kong and the Singapore stock market. In other words, in addition to considering the stability of stock market time, investors should take into consideration the foreign country stock market return volatility behavior in order to achieve the anticipated effect.