Return and volatility spillover between India and leading Asian and global equity markets: an empirical analysis

A. Mishra, Saksham Agrawal, Jash Ashish Patwa
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引用次数: 8

Abstract

PurposeThe study uses the multivariate GARCH-BEKK model (which was first proposed by Baba et al. (1990) and then further developed by Engle and Kroner (1995)) to examine the return and volatility spillover between India and four leading Asian (namely, China, Japan, Singapore and Hong Kong) and two global (namely, the United Kingdom and the United States) equity markets.Design/methodology/approachThe study employs a multivariate GARCH-BEKK model to quantify return correlation and volatility transmission across the pre- and post-2008 global financial crisis periods (apart from other conventional time series modelling like cointegration, Granger causality using vector error correction model (VECM)).FindingsThe results show a tendency of the Indian stock market index to move along with the US and Hong Kong market indices. The decrease in the value of the co-integration coefficient during the recession was explained by reduced investor confidence in developing countries. The result further shows a clear distinction in terms of volatility spillover between the Asian market vis-a-vis US and UK markets. Volatility transmission from India to Asian markets was found to be significantly higher as compared to the US and UK. So also, the study’s results show a puzzling result giving us comparable co-integration ranks for phase 2 (expansion) and phase 3 (slow-down) of the business cycle in most cases.Research limitations/implicationsIn Granger causality testing, the results were unable to ascertain the difference between phase 2 (expansion) and phase 3 (slowdown). However, the multivariate GARCH (MGARCH)-BEKK model showed a clear reduction in volatility transmission to NIFTY50 (is the flagship index on the National Stock Exchange of India Ltd. (NSE)) as India entered slow-down. This shows that the Indian economy does go through different business cycles, and the changes in parameters hence prove hypothesis 3 to be true with respect to volatility transmission to India from International markets.Originality/valueThe results show that for all countries, the volatility transmitted to India increases significantly going from phase 1 (recession) to phase 2 (expansion) and reduces again once the countries enter slow-down in phase 3 (slowdown). This shows that during expansion shocks and impulses in international markets affect the Indian markets significantly, supporting the increase in co-integration in phase 2 (expansion). During expansion, developing markets like India become profitable for investors, due to the high growth rate when compared to developed countries. This implies that a significant amount of capital enters Indian markets, which is susceptible to the volatility of international markets. The volatility transmission from India to the US and UK was insignificant in phase 1 (recession and recovery) and phase 3 (slow-down) showing a weak linkage between the markets during volatile time periods.
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印度与主要亚洲及全球股市之间的回报和波动溢出:实证分析
本研究使用多元GARCH-BEKK模型(该模型首先由Baba等人(1990)提出,然后由Engle和Kroner(1995)进一步发展)来检验印度与四个主要亚洲(即中国、日本、新加坡和香港)以及两个全球(即英国和美国)股票市场之间的回报和波动溢出。本研究采用多变量GARCH-BEKK模型来量化2008年全球金融危机前后的收益相关性和波动传导(除了协整、格兰杰因果关系等传统时间序列模型外,还使用向量误差修正模型(VECM))。结果显示,印度股市指数有与美国和香港股市指数一起变动的趋势。经济衰退期间协整系数值的下降可以用发展中国家投资者信心的下降来解释。研究结果进一步表明,亚洲市场相对于美国和英国市场的波动性外溢存在明显差异。与美国和英国相比,从印度到亚洲市场的波动率传导明显更高。因此,研究结果也显示了一个令人困惑的结果,在大多数情况下,我们可以比较商业周期的第二阶段(扩张)和第三阶段(放缓)的协整排名。在格兰杰因果检验中,结果无法确定阶段2(扩张)和阶段3(放缓)之间的差异。然而,多元GARCH (MGARCH)-BEKK模型显示,随着印度经济进入放缓阶段,对NIFTY50(印度国家证券交易所有限公司(NSE)的旗舰指数)的波动传导明显减少。这表明印度经济确实经历了不同的商业周期,因此参数的变化证明了关于国际市场波动传导到印度的假设3是正确的。结果表明,对于所有国家来说,从第一阶段(经济衰退)到第二阶段(经济扩张),传递给印度的波动性显著增加,一旦国家进入第三阶段(经济放缓),波动性再次降低。这表明,在扩张期间,国际市场的冲击和冲动会显著影响印度市场,支持第二阶段(扩张)协整的增加。在扩张期间,像印度这样的发展中市场对投资者来说是有利可图的,因为与发达国家相比,它们的增长率很高。这意味着大量资本进入易受国际市场波动影响的印度市场。从印度到美国和英国的波动传导在阶段1(衰退和复苏)和阶段3(放缓)中微不足道,这表明在波动时期市场之间的联系很弱。
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来源期刊
Journal of Economics, Finance and Administrative Science
Journal of Economics, Finance and Administrative Science Economics, Econometrics and Finance-Economics, Econometrics and Finance (all)
CiteScore
5.10
自引率
20.80%
发文量
23
审稿时长
12 weeks
期刊介绍: The Universidad ESAN, with more than 50 years of experience in the higher education field and post graduate studies, desires to contribute to the academic community with the most outstanding pieces of research. We gratefully welcome suggestions and contributions from business areas such as operations, supply chain, economics, finance and administration. We publish twice a year, six articles for each issue.
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