ABSTRACT
This chapter investigates whether the results pertaining to the short-term interaction between markets are further supported when autoregressive conditional heteroskedasticity (ARCH) effects are taken into account. In the context of the Australian equity market linkage with other countries, the present writer is only aware of one study based on ARCH methods which has examined interaction across markets — that of McNelis. The chapter discusses only two of the most highly used asymmetric generalised ARCH (GARCH) models — the exponential GARCH model and the GJRGARCH model. It reports the results of the GARCH and/or exponential GARCH (EGARCH) model analysis of the interaction between the equity markets of Australia and its major trading partners of Japan, Hong Kong, Singapore, US, UK, Taiwan and Korea for three subperiods: before deregulation; before the crash, and after the crash.
