Volatility Spillover in India, USA and Japan Investigation of Recession Effects
AbstractIn the past decades, there has been an unprecedented increase in cross border transactions between countries in terms of goods and financial flows. This integration has been fuelled by search of lower risk investments, risk diversification, search for cost effective and more efficient factors of production and dreams of global dominance in the world wide market place. An important result of these capital flows was its impact on linkages of global asset returns and spillover of volatility from one capital market to another. This study aims to understand the spillover effect between the US, the Japan capital markets and Indian equity index (Sensex). We analyze whether the volatility spillover is contemporaneous (directly in the very same day), or dynamic/lagged (with one day lag). A GARCH (1,1) model of modelling volatility has been undertaken for this purpose. This paper concludes that contemporary volatility of the Japan capital markets influenced Sensex in the pre-recession period but in the post recession there was no significant contemporaneous spillover from USA and Japan capital markets to Sensex. However, US became a significant factor while considering dynamic spillover in the post recession era. Also, there was no bidirectional volatility spillover from India to US. But, the study showed evidence of dynamic volatility spillover from Indian market to Japanese Capital market.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 21873.
Date of creation: 06 Apr 2010
Date of revision:
Volatility; Spillover; GARCH; Recession effects;
Other versions of this item:
- Sinha, Pankaj & Sinha, Gyanesh, 2010. "Volatility Spillover in India, USA and Japan Investigation of Recession Effects," MPRA Paper 47190, University Library of Munich, Germany, revised 17 May 2013.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- G01 - Financial Economics - - General - - - Financial Crises
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- F39 - International Economics - - International Finance - - - Other
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