Abstract
This study investigates the return spillovers and volatility spillovers from developed markets (e.g., Europe, Japan and the US) into the financial markets of selected emerging countries in Asia and the Middle East and North Africa (MENA) region. Based on constant and trend spillover models, we find evidence of significant spillover effects from developed markets to emerging markets. The results from variance ratios indicate the dominance of US shocks across all emerging markets, though the effect varies widely among countries. New to these literature, we conduct an empirical analysis quantifying the underlying determinants affecting the extent of shock spillovers. The results show that bilateral factors such as trade volume, portfolio investment and distance are significant in explaining the spillover effects.
•We examine the return and volatility spillovers from developed to emerging markets.•Our sample consists of 20 emerging countries over the period 2000–2013.•We find significant spillover effects from developed to emerging financial markets.•Shocks originated in the US play a dominant role, albeit at varying degrees.•Bilateral factors such as trade significantly explain the spillover effects.