The international transmission of stock returns and stock return volatility

Abstract

This thesis examines the level and degree of interdependence between the United States and New Zealand. In particular, I examine the effects of the arrival of new information in the United States stockmarket, as measured by a unit shock, that is transmitted to the New Zealand stockmarket. The methodology for deriving impulse response functions from the nonlinear conditional variance process is given particular attention. Impulse response functions for both stock returns and stock return volatility are computed from the estimation of a multivariate GARCH model. In addition, the transmission mechanism is further profiled by examining price spillovers, and asymmetry in the volatility process.