Capturing volatility and its spillover in South Asian countries

Ruchika Gahlota

Abstract


This paper intends to study volatility and its spillover among South Asian Countries through use of Granger causality test. Using the daily closing prices of major index of each country in South Asia, the Granger causality and C GARCH M models asses the impact of recession on the nature of volatility by decomposing the long period into two sub periods. The study finds significant bidirectional causality between Stock market of U.S. and India for both short terms as well as for long term which is not disturbed by recession. But the recession has changed causal relation among other countries. The recession has created higher shock impact on the permanent component of the volatility of stock market of all South Asian countries. It is also observed that volatility of all South Asian countries is of long term nature. In addition, the observed spillover effects are unstable over time in the sense that the spillover changed its nature after beginning of recession.


Keywords


C GARCH M; Granger Causality; Risk premium; Recession; Volatility spillover.

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References


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DOI: http://dx.doi.org/10.18533/jefs.v1i01.31

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