Information shocks, market returns and volatility: a comparative analysis of developed equity markets in Asia

SN Bus Econ. 2023;3(1):37. doi: 10.1007/s43546-022-00417-w. Epub 2023 Jan 9.

Abstract

This research explores the function of information shocks in equity returns and integrated volatility of emerging Asian markets using Swap Variance (SwV) approach on the period of 20 years (Feb 2001-Feb 2020). It compares average monthly returns and volatility of shock periods with non-shock periods after separating negative and positive shocks. Findings reveal frequent occurrence of information shocks in all Asian developed equity markets with positive shocks than that of negative shocks. Moreover, highly volatile Asian developed markets earn higher returns during shocks periods, while markets with higher volatility and lower continuous returns are adversely affected during shocks periods. The ratio of total realized volatility and the average ratio of shocks volatility establish that shocks account for a considerable amount of volatility, and integrated volatility is higher during negative shocks phases. The study has implications for all stakeholders of financial markets for rational investment decisions.

Keywords: Bipower variation; Realized volatility; Shock identification; Swap variance; Tripower variation.