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Volatility Spillovers between South Asian Stock Markets: Evidence from Sri Lanka, India and Pakistan

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  • Withanage, Yeshan
  • Jayasinghe, Prabhath

Abstract

This study examines the existence, magnitude and direction of volatility spillovers between the Sri Lankan stock market and two other major stock markets in the South Asian region: India and Pakistan. Main stock indices of Sri Lanka, India, and Pakistan are employed as proxies to represent stock markets of each country. Daily data over the period 2nd January 2004 to 23rd September 2014 is used for estimations. Volatility spillovers are modeled through a trivariate BEKK – GARCH (1, 1) model to capture the cross-market effects. There exist bilateral intraday volatility spillovers between Sri Lanka and both markets. It is evident that the intraday effect from Pakistan to Sri Lanka is stronger than the same effect from India to Sri Lanka. However, with respect to overnight volatility spillovers, there is only a unilateral spillover effect from Sri Lanka to India. Evidence for the presence of volatility spillovers between these three South Asian economies makes the tasks of monetary policy makers, investors and fund managers more complicated than they would otherwise have been.

Suggested Citation

  • Withanage, Yeshan & Jayasinghe, Prabhath, 2017. "Volatility Spillovers between South Asian Stock Markets: Evidence from Sri Lanka, India and Pakistan," MPRA Paper 82782, University Library of Munich, Germany, revised Nov 2017.
    • Handle: RePEc:pra:mprapa:82782
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    More about this item

    Keywords

    Volatility spillovers; South Asian stock markets; Multivariate GARCH models; BEKK models;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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