Spillovers from the US to Stock Markets in Asia : A Quantile Regression Approach

This paper analyzes return spillovers from the US to stock markets in Asia by means of quantile regressions. Traditional studies consider spillovers as effects of the conditional means of foreign returns onto the conditional means of chronologically succeeding domestic markets' returns. We, by contrast, study the full range of quantiles of the conditional distribution of the domestic markets' returns. This enables us to document the detailed structure of spillovers across return quantiles. Generally, we find spillovers from the US to Asia to be negative. Specifically, however, we reveal an asymmetric structure of spillovers with an increasing negative magnitude from lower to upper return quantiles. Theoretically, this pattern is consistent with an asymmetric overreaction of traders in Asia to news from the US market. Extensions from the baseline model further suggest the presence of contagion throughout the financial crisis of 2007-08 as well as of calm-down effects over weekends