Price and Volatility Spillovers Across North American, European and Asian Stock Markets: With Special Focus on Indian Stock Market

43 Pages Posted: 8 Jan 2009 Last revised: 28 Dec 2010

See all articles by Priyanka Singh

Priyanka Singh

Indian Institute of Management (IIM), Ahmedabad

Brajesh Kumar

Jindal Global Business School; IIM Ahmedabad

Ajay Pandey

OP Jindal Global University - Jindal Global Law School (JGLS)

Date Written: January 7, 2009

Abstract

This paper investigates interdependence of fifteen world indices including an Indian market index in terms of return and volatility spillover effect. These markets are that of Canada, China, France, Germany, Hong-Kong, Indonesia, Japan, Korea, Malaysia, Pakistan, Singapore, Taiwan, United Kingdom and United States. Vector autoregressive model (VAR 15) is used to estimate the conditional return spillover among these indices in which all fifteen indices are considered together. The effect of same day return in explaining the return spillover is also modeled using univariate models. Volatility spillover is estimated through AR-GARCH in which residuals from the index return is used as explanatory variable in GARCH equation. Return and volatility spillover between Indian and other markets are modeled through bivariate VAR and multivariate GARCH (BEKK) model respectively. It is found that there is greater regional influence among Asian markets in return and volatility than with European and US. Japanese market, which is first to open, is affected by US and European markets only and affects most of the Asian Markets. Also, high degree of correlation among European indices namely FTSE, CAC and DAX is observed. US market is influenced by both Asian and European markets. Specific to Indian context, it is found that Indian market is not cointegrated with rest of the world except Indonesia. However, strong short run interdependence is found between Indian markets and most of the other markets. Indian and other markets like US, Japan, Korea, and Canada positively affect each others' conditional returns significantly. Indian market also has significant effect on Malaysia, Pakistan, and Singapore return.

Keywords: Return Spillover, Volatility spillover, VAR (15), BEKK, Emerging market, Cointegration, Granger causality

JEL Classification: G15, C32

Suggested Citation

Singh, Priyanka and Kumar, Brajesh and Pandey, Ajay, Price and Volatility Spillovers Across North American, European and Asian Stock Markets: With Special Focus on Indian Stock Market (January 7, 2009). Available at SSRN: https://ssrn.com/abstract=1324350 or http://dx.doi.org/10.2139/ssrn.1324350

Priyanka Singh

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Brajesh Kumar (Contact Author)

Jindal Global Business School ( email )

University Sonipat-Narela Road
Near Jagdishpur Vill
Sonipat, Haryana 131001
India
+918930110773 (Phone)

HOME PAGE: http://www.jgbs.edu.in

IIM Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Ajay Pandey

OP Jindal Global University - Jindal Global Law School (JGLS) ( email )

Jindal Centre 12 Bhi12 Bhikaiji Cama Place
Near Jagdishpur Village
New Delhi, Uttar Pradesh/Haryana 110 066
India

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