Volatility Spillover Effects between Indian Stock Market and Global Stock Markets: A DCC-GARCH Model

Abstract

The present article empirically estimates the volatility spillover transmission in Indian equity market represented by Sensex from world economies composite index (Euro Stoxx 50) using the dynamic conditional correlation generalized autoregressive conditional heteroscedasticity (DCC-GARCH) model. The study uses secondary data spanning between 1 April 2012 and March 2022 on weekly basis. The DCC-GARCH model is applied to examine the spillover from developed stock markets to Indian stock market (Sensex). The findings of the study revealed that in short run there is a spillover effect from global markets to Indian stock markets. Investors can invest in the Indian stock market for the long period of time as there is no volatility spillover or volatility transmission from Euro and Nasdaq however in short run the investment in the Indian stock market is not safe due to the presence of volatility effect from all developed stock markets.