Volatility Spillover Effect between Chinese and Korean Stock Markets

Due to the development of IT technology, international stock markets have been experiencing an increasing linkages or interaction with one another as a result of information transmission. In this paper, we have examined stock market linkages between Chinese and Korean stock markets in terms of volatility spillover effect. We also investigated the impact of global financial crisis in 2008 on the volatility spillover using the VAR-bivariate GARCH model. We found that Chinese stock market has a strong influence on the volatility of the Korean stock market. In addition, before the global financial crisis, there is a bi-directional volatility spillover effect between two markets, whereas after the crisis there is an uni-directional volatility spillover effect from the Chinese stock market to the Korean stock market. This finding indicates that the impact of global financial crisis enhances the dominance effect of Chinese stock market over the Korean stock market.