Influences of Quantitative Easing Policy on Volatility and Correlation among Asian Financial Markets

Abstract

This paper is to investigate the impacts of the U.S. quantitative easing (QE) policy on the volatility of stock and exchange markets and the dynamic correlation between stock and exchange markets in the Asian countries. Our empirical results show that the U.S. QE policy would ease the fluctuations caused by the 2008 global financial crises by reducing the volatility of stock and exchange markets in the Asian countries, especially during the QE1 period. Using the DCC GARCH model, we explore whether the QE policy made significant changes of the structure between stock and exchange markets. We find that the dynamic correlation coefficients of stock and exchange markets in Hong Kong, Malaysia, Taiwan and Thailand show a dramatic change during the period of financial crisis and QE policy. In particular, the stock indices rise more and the currencies appreciate more during the QE1.