Abstract:
This paper adopts a nonparametric quantile causality approach to examine the causal
effects of the U.S. and Japan stock markets on the stock markets of the Pacific‐Rim
region. This approach allows us to detect not only nonlinear causalities in conditional
return (mean) and conditional volatility (variance), but also the asymmetries of
causalities under extreme market conditions (bullish vs. bearish states). Our results
provide significant evidence of causality in return and volatility at different points of the
conditional distributions of returns, with the greater effects from the U.S. than from
Japan. Asymmetric quantile causality patterns are particularly pronounced in the case
of Japan.
