Global and Regional Sources of Risk in Equity Markets: Evidence from Factor Models with Time-Varying Conditional Skewness

Abstract

This study examines the influence of global and regional factors on the conditional distribution of stock returns from six Asian markets, using factor models in which unexpected returns comprise global, regional and local shocks. Besides conditional heteroskedasticity, the models allow shocks to have time-varying conditional skewness. The global factor appears less important for market volatility in models that permit time-varying conditional skewness. The influence of regional and global factors on risk is small in most of the markets, except in the late 1990s during which the regional factor accounted for a substantial portion of negative skewness in the markets' returns distribution.Asymmetries, Skewness, Volatility, Spillover, Stock returns