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In this paper we examine whether asymmetry and/or nonlinearity are significant in the transmission of stock-index returns among equity markets of US, Japan, China and Korea, using daily stock price index data from January 2000 to December 2014. We analyze how the accumulated responses per unit of each market to internal and external return shocks vary with the sign and the size of shocks, by employing a nonlinear local projection model. Empirical tests suggest that transmission elasticities are influenced both by the sign and by the size of return shocks. We find that with a few exceptions at the shorter forecasting horizons, the accumulated responses per unit to negative external return shocks are larger than positive ones of the same size, and that the accumulated responses per unit increase with its absolute size for negative return shock, but decrease for positive one.
