This paper explores the information transmission effects by examining the mean and volatility spillovers between large- and small-cap stock indices in Tokyo Stock Exchange. A systematic VAR model and the bivariate VC-GJR-GARCH model (Tse and Tsui, 2002) are used to investigate the mean and volatility spillovers, respectively. The empirical results exhibit that there are no strong evidences for any mean spillovers between large- and small-cap stock indices, which is consistent with Reyes (2001). For the volatility spillovers, bidirectional information transmissions between large- and small-cap stock indices are observed. In the further research, the volatility of large-cap stock index is only affected by the positive shocks of small-cap stock index. However, the volatility of small-cap stock index is significantly affected by both positive and negative shocks of large-cap stock index. These results may provide some implications for predicting the short-term dynamics of volatility for large- and small-cap stock indices.
Journal of Accounting, Finance & Management Strategy 9(2) (21pages)