| Summary: | 碩士 === 嶺東科技大學 === 財務金融研究所 === 96 === This paper uses Student's t distribution to analyze the association and the proposed model construction of South Korean and Japanese stock markets for the period from January 4th, 1999 to December 29th, 2005. The empirical results indicate that there is a strong association between South Korean and Japanese stock markets and construct in a bivariate asymmetric GARCH (1，2) model with dynamic conditional correlation. The empirical result analysis also demonstrates that South Korean and Japanese stock market returns show the positive relations, and the volatility of Japanese and South Korean stock market returns interact with each other. The average value of dynamic conditional correlation of the two stock market returns is equal to 0.5306. Furthermore, South Korean and Japanese stock markets do have an asymmetrical effect during the sample period. The evidence may suggest that stock market investors or international fund managers must consider the risk of Japanese stock price return volatility and its close connection with South Korean market while making investment decision on Japanese stock market. Therefore, in addition to considering the stability of stock market, investors should take into consideration the influence of the foreign country stock market return volatility behavior in order to achieve the anticipated effect.
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