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Financial Crisis and Contagion Effects to Indian Stock Market: ‘DCC–GARCH’ Analysis


  • Krishna Reddy Chittedi


The study applies the dynamic conditional correlation (DCC) bivariate generalized autoregressive conditional heteroskedasticity (GARCH) model of Engle ( 2002 ) in order to capture the contagion effects during global financial crisis. We used daily stock returns for the period January 2002–December 2011 to study the contagion effects from the United States (US) to India. We have considered January 2002–December 2007 as the pre-crisis period and January 2008–December 2011 as crisis period. Empirical findings show that there has been a significant increase in the mean of correlation coefficient between the markets in the crisis periods compared to the pre-crisis period. This proves the existence of contagion between the US and Indian markets. However, this enhanced correlation does not lead to the removal of international diversification benefits since emerging markets still outperform in the long run due to reduced volatility. Finally, it should be noted that the presence of investment barriers and the importance of country-specific risks curtail foreign participation, even though it has grown considerably in a diminishing manner over time.

Suggested Citation

  • Krishna Reddy Chittedi, 2015. "Financial Crisis and Contagion Effects to Indian Stock Market: ‘DCC–GARCH’ Analysis," Global Business Review, International Management Institute, vol. 16(1), pages 50-60, February.
  • Handle: RePEc:sae:globus:v:16:y:2015:i:1:p:50-60
    DOI: 10.1177/0972150914553507

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    6. Shegorika Rajwani & Dilip Kumar, 2016. "Asymmetric Dynamic Conditional Correlation Approach to Financial Contagion: A Study of Asian Markets," Global Business Review, International Management Institute, vol. 17(6), pages 1339-1356, December.
    7. Ashima Arora & Anjala Kalsie, 2018. "Impact of US Financial Crisis on GDP of BRICS Economies: An Analysis Using Panel Data Approach," Global Business Review, International Management Institute, vol. 19(2), pages 439-454, April.
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    9. Handika, Rangga & Soepriyanto, Gatot & Havidz, Shinta Amalina Hazrati, 2019. "Are cryptocurrencies contagious to Asian financial markets?," Research in International Business and Finance, Elsevier, vol. 50(C), pages 416-429.
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    12. A. P. Pati, 2017. "Credit Risk Stress Testing Practices in BRICS: Post-global Financial Crisis Scenario," Global Business Review, International Management Institute, vol. 18(4), pages 936-954, August.
    13. Ijaz Younis & Cheng Longsheng & Muhammad Farhan Basheer & Ahmed Shafique Joyo, 2020. "Stock market comovements among Asian emerging economies: A wavelet-based approach," PLOS ONE, Public Library of Science, vol. 15(10), pages 1-23, October.
    14. Paravee Maneejuk & Woraphon Yamaka, 2019. "Predicting Contagion from the US Financial Crisis to International Stock Markets Using Dynamic Copula with Google Trends," Mathematics, MDPI, vol. 7(11), pages 1-29, November.
    15. Christian Bucio-Pacheco & Miriam Sosa-Castro & Francisco Reyes-Zarate, 2023. "Volatilidad dinamica en el sector bancario en Mexico: evidencia DCC-GARCH vs Copula-GARCH," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 20(2), pages 69-93, Julio-Dic.
    16. Neha Seth & Laxmidhar Panda, 2020. "Time-varying Correlation Between Indian Equity Market and Selected Asian and US Stock Markets," Global Business Review, International Management Institute, vol. 21(6), pages 1354-1375, December.
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