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Linkages between Indian and US financial markets: impact of global financial crisis and Eurozone debt crisis

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  • Pami Dua
  • Divya Tuteja

Abstract

This paper examines inter-linkages between Indian and US equity, foreign exchange and money markets using the vector autoregressive-multivariate GARCH-BEKK framework. We investigate the impact of global financial crisis (GFC) and Eurozone debt crisis (EZDC) on the conditional volatility and conditional correlation estimates derived from the multivariate GARCH model for Indian and US financial markets. Our results indicate that there is significant bidirectional causality-in-mean between the Indian stock market returns and the Rs./USD market returns, and significant unidirectional causality-in-mean from the US stock market returns to the Indian stock market returns. As regards volatility spillovers, we find that volatility in the Indian stock market rises in response to domestic as well as US financial market shocks but Indian financial market shocks do not impact the US markets. Further, impact of the recent crisis episodes on the covariance matrix is found to be significant. We find that volatility in the Indian and US financial markets significantly amplified during GFC. The conditional correlations across asset markets were significantly accentuated in the wake of the two crisis episodes. The impact of GFC on cross-market conditional correlations is higher for majority of the asset market pairs in comparison to the EZDC.

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  • Pami Dua & Divya Tuteja, 2016. "Linkages between Indian and US financial markets: impact of global financial crisis and Eurozone debt crisis," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 9(3), pages 217-240, September.
    • Handle: RePEc:taf:macfem:v:9:y:2016:i:3:p:217-240
    DOI: 10.1080/17520843.2016.1166144
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    6. Kashif Hamid & Muhammad Mudasar Ghafoor & Muhammad Yasir Saeed, 2020. "Emerging Markets and Volatility Spillover Effects: Empirical Evidence from Regional Emerging Economies of Pakistan, China, India, and Bangladesh," Global Economics Review, Humanity Only, vol. 5(1), pages 102-116, March.

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