Volatility Spillover and Risk Measurement of Southeast Asian Financial Markets

Abstract

Objective: this study aims to examine volatility transmission in ASEAN-5 financial markets during 2019–2023, covering pre-pandemic, pandemic, and post-pandemic phases, to analyze the impact of COVID-19 and other external factors, such as political crises and geopolitical tensions, on these interconnected markets. Methods: using AR-GARCH and VECM models, the study analyzed aggregated stock index data from the five countries, with a focus on volatility spillovers and value at risk (VaR) levels to assess both short-and long-term interdependencies. Results: the findings reveal substantial volatility transmission among ASEAN-5 markets, indicating significant financial interdependencies that heighten regional risk, especially during periods of global disruption. VaR results further suggest that the Indonesian stock market (JKSE) carries a higher risk profile, reflecting the impact of local economic conditions and regional interconnectivity. Conclusions: the study underscores the need for investors to account for volatility transmission in risk management, especially given the COVID-19 pandemic and geopolitical factors. Strong market interconnectivity within the ASEAN-5 may limit the effectiveness of cross-market diversification, highlighting the importance of regional risk mitigation and coordinated policies.