Non-linearity, persistence and spillover effects in stock returns: the role of the volatility index

This paper employs panel smooth transition autoregression models, using the volatility index (VIX) as the transition variable, to evaluate the persistence, efficiency, and spillover effects of stock markets in G 10 and ASEAN 5 countries. The persistence effects are nonlinear and vary with time and across countries, depending on the value of the VIX. When VIXs are over specific thresholds (30.69 and 31.04), the stock returns in G 10 and ASEAN 5 display moderate and similar persistence effects and make lagged stock returns become more important when evaluating current stock returns. The spillover effects occur from VIX to stock returns. The speculation behaviour of stock markets in ASEAN 5 is higher than that in G 10; however, the result in the efficiency of stock markets is the opposite.