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An exploration on volatility across India and some developed and emerging equity markets

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  • Paramita Mukherjee

    ()
    (Institute of Engineering and Management, EE 140/11, Salt Lake City, Sector II, Kolkata 700 091, India)

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    Abstract

    The opening up of financial markets in India has led to significant transformation within the financial sector, which has become more integrated with international stock markets. The general concern which is emerging with such development is the increased volatility of equity returns. This paper explores the relationship between volatility within not only the Indian equity market but also within other developed and emerging markets as well. Based on a daily data set for more than nine years, this paper estimates a joint Vector Auto Regression/Multivariate Generalized Autoregressive Conditional Heteroskedasticity (VAR-MGARCH) model. As the existing literature suggests, returns in the United States of America, the Republic of Korea and Hong Kong, China have a definite effect on returns in India. More interesting is the finding that Indian market returns also affect the returns in other markets such as Japan, the Republic of Korea, Singapore and Hong Kong, China. In addition, return volatility of the Indian market does not have an increasing or declining trend, but exhibits sudden sharp increases over the sample period. The conditional correlation of the Indian equity market return with all the other markets has increased over time in recent years.

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    File URL: http://www.unescap.org/pdd/publications/apdj-18-2/4-Mukherjee.pdf
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    Bibliographic Info

    Article provided by United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) in its journal Asia-Pacific Development Journal.

    Volume (Year): 18 (2011)
    Issue (Month): 2 (December)
    Pages: 79-103

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    Handle: RePEc:unt:jnapdj:v:18:y:2011:i:2:p:79-103

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    Related research

    Keywords: Volatility transmission; Indian equity market; market integration; volatility linkage;

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    References

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    1. Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(2), pages 281-307.
    2. Luis Catão & Robin Brooks, 2000. "The New Economy and Global Stock Return," IMF Working Papers 00/216, International Monetary Fund.
    3. Woochan Kim & Shang-Jin Wei, 1999. "Foreign Portfolio Investors before and during a Crisis," CID Working Papers 6, Center for International Development at Harvard University.
    4. Sébastien Laurent & Luc Bauwens & Jeroen V. K. Rombouts, 2006. "Multivariate GARCH models: a survey," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(1), pages 79-109.
    5. Wing-Keung Wong & Aman Agarwal & Jun Du, 2005. "Financial Integration for India Stock Market, a Fractional Cointegration Approach," Departmental Working Papers wp0501, National University of Singapore, Department of Economics.
    6. Gamini Premaratne & Lakshmi Bala, 2004. "Stock Market Volatility: Examining North America, Europe and Asia," Econometric Society 2004 Far Eastern Meetings 479, Econometric Society.
    7. Carmen Broto & Javier Díaz-Cassou & Aitor Erce-Domínguez, 2008. "Measuring and explaining the volatility of capital flows towards emerging countries," Banco de Espa�a Working Papers 0817, Banco de Espa�a.
    8. Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
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