Cross-market interdependence among Asia-Pacific countries : a dynamic herding spillover approach

This study investigates the cross-market interdependence among Asia-Pacific countries through dynamic herding spillover by using the structural change model of Bai and Perron (1998, 2003) from 2007-2022. The countries selected for the study are China, Japan, South Korea, India, the US, and Thailand. Results of the study depict herding spillover and co-movement among Asia-Pacific countries during turbulent regimes. The study shows mixed results for the sample countries. Pairwise herding co-movement is evident between the US-Japan, Japan-South Korea and South Korea-China during various contagious events such as Covid-19, the Great East Japan Earthquake, the Global Financial Crisis, and the Shanghai stock market crash. India is showing herding spillover from Japan and a co-movement with Thailand only. Moreover, one-way herding spillover is present from the US to South Korea due to the cryptocurrency crash. Furthermore, Thailand and its trading partners are following each other during various events. The stock market in Thailand appears to be highly interconnected with other Asia-Pacific markets and responsive to changes in market structure. All these findings show that the economies of Asia-Pacific countries are correlated with each other through herding spillover during various contagious events. Hence, investors should diversify their trading and asset allocation strategies during these turbulent regimes, as market risk increases during these events.