INTERNATIONAL TRANSMISSION OF STOCK RETURNS: MEAN AND VOLATILITY SPILLOVER EFFECTS IN INDONESIA AND MALAYSIA

This paper examines the mean return and volatility spillover effects from the three influential stock markets of the US, Japan, and China to the two emerging stock markets of Indonesia and Malaysia over the sample period from 2005 to 2007. By analyzing GARCH models, we verify that there are significant mean spillover effects from the three major markets to the two emerging markets. The magnitude of the mean spillover from the US market is the most significant compared to the Japanese and Chinese markets. This would be consistent with the conventional wisdom in which the US market is believed to be the most influential market in the world. In terms of the volatility spillover, the empirical results reveal that the US market is more influential to Indonesia, but less to Malaysia, and recently growing Chinese market has a significant influence to both of the two emerging markets.