Volatility Spillovers across Developed/Developing Markets: The Case of India

Authors

  •   Bahram Adrangi W. E. Nelson Professor of Financial Economics, University of Portland, 5000 N. Willamette Blvd., Portland, Oregon 97203
  •   Arjun Chatrath Schulte Professor of Finance, University of Portland, 5000 N. Willamette Blvd., Portland, Oregon, 97203
  •   Kambiz Raffiee Foundation Professor of Economics, College of Business, University of Nevada, Reno, Nevada 89557
  •   Nitin Sharma Senior Analyst, Fractal Analytics, Level 7 Silver Metropolis, Off Western Express Highway, Goregaon (E), Mumbai - 400 063

Keywords:

Volatility

, Bivariate GARCH, Chaos, Nonlinearities

G00

, G14, G15

Abstract

The present research paper investigates the daily volatility spillovers between Standard and Poor's 500, Nikkei, and India's Nifty index between the time period from 2000 - 2009. We find that the price series exhibit nonlinear dependencies, inconsistent with chaotic structure. Bivariate GARCH estimations with volume controls indicate multi-directional spillovers. Finding evidence of asymmetric market responses to shocks, we propose and estimate asymmetric bivariate EGARCH models. We find transmissions to be asymmetric whereby positive and negative shocks have an unequal impact on the volatility of the other market. While the relationship between the developed markets is strong, the influence of the less developed Indian market is also apparent.

Downloads

Download data is not yet available.

Downloads

Published

2013-07-01

How to Cite

Adrangi, B., Chatrath, A., Raffiee, K., & Sharma, N. (2013). Volatility Spillovers across Developed/Developing Markets: The Case of India. Indian Journal of Finance, 7(7), 5–22. Retrieved from https://www.indianjournalofcapitalmarkets.com/index.php/IJF/article/view/72099

Issue

Volume 7, Issue 7, July 2013

Section

Articles

References

Adrangi, B., Chatrath, A., Dhanda, K.K., & Raffiee, K. (2001a), “Chaos in Oil Prices? Evidence from Futures markets.†Energy Economics, 23 (4), pp. 405-425.

Adrangi, B., Chatrath, A., Kamath, R., & Raffiee, K. (2001b). “Demand for the U.S. Air Transport Service: A Chaos and Nonlinearity Investigation.†Transportation Research Part E, 37 (5), pp. 337-353.

Akaike, H. (1974), “A New Look at Statistical Model Identification.†IEEE Transactions on Automatic Control, 19 (6), pp. 716-723.

Bekaert, G., Campbell, H. R., & Ng. A. (2005). “Market Integration and Contagion.†Journal of Business, 78 (1), pp. 39-69.

Bernanke, B. S., & Kuttner, K. N. (2005). “What Explains the Stock Market's Reaction to Federal Reserve Policy.†Journal of Finance, 60 (3), pp. 1221-1257.

Brendt, E.K., Hall, B.H., Hall, R.E., & Hausman, J.A. (1974). “Estimation and Reference in Nonlinear Structural Models.†Annals of Economics and Social Measurement, 3 (4), pp. 653-665.

Brock, W.A., Dechert, W., & Scheinkman, J. (1987). “A test of Independence Based on the Correlation Dimension.†Unpublished Manuscript, University of Wisconsin, Madison, University of Houston and University of Chicago.

Brock, W.A., & Sayers, C. L. (1988). “Is the Business Cycle Characterized by Deterministic Chaos?†Journal of Monetary Economics, 22 (1), pp. 71-90.

Chan, K., Chan, K.C., & Karolyi, G. A. (1991). “Intraday Volatility in the Stock Index and Stock Index Futures Markets.†Review of Financial Studies, 4 (4), pp. 657-684.

Chatrath, A., & Song, F. (1998). “Information and the Volatility in Futures and Spot Markets: The Case of the Japanese Yen.†Journal of Futures Markets, 18 (2), pp. 201-224.

Cheung, Y.W., & Ng, L.K. (1992). “Stock Price Dynamics and Firm Size: An Empirical Investigation.†Journal of Finance, 47(5), pp. 1985-1997.

Dickey, D. A. & Fuller, W.A. (1981). “Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root.†Econometrica, 49 (4), pp. 1057-1072.

Dungey, M. Fry, R. , González-Hermosillo, B., & Martin, V. (2006). “Contagion in International Bond Markets During the Russian and the LTCM Crises.†Journal of Financial Stability, 2 (1), pp. 1-27.

Ehrmann, M., Fratzscher, M., & Rigobon, R. (2005). “Stocks, Bonds, Money Markets and Exchange Rates Measuring International Financial Transmission.†Working Paper Series No. 452, European Central Bank.

Engle, R.F., & Ng, V. K. (1993). “Measuring and Testing the Impact of News on Volatility.†Journal of Finance, 48 (5), pp. 1749-1778.

Engle, R. F. (1982). “Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of United Kingdom Inflation.†Econometrica, 50 (4), pp. 987-1007.

Engle, R.F., Ng, V. K., & Rothschild, M. (1990). “Asset Pricing with a Factor ARCH Co-variance Structure: Empirical Estimates or Treasury Bills.†Journal of Econometrics, 45 (1/2), pp. 213-238.

Frank, M., & Stengos, T. (1989). “Measuring the Strangeness of Gold and Silver Rates of Return.†Review of Economic Studies, 56(4), pp. 553-567.

Grassberger, P., & Procaccia, I., (1983). “Measuring the Strangeness of Strange Attractors.†Physica D (Nonlinear Phenomena), 9 (1-2), pp. 189-208.

Hamao, Y., Masulis, R.W., & Ng, V. (1990). “Correlations in Price Changes and Volatility across International Stock Markets.†Review of Financial Studies, 3 (2), pp. 281-308.

Hsieh, D.A., (1989). “Testing for Nonlinear Dependence in Exchange Rate Changes.†Journal of Business, 62 (3), pp. 339-368.

Koutmos, G. (1999). “Asymmetric Price and Volatility Adjustments in Emerging Asian Stock Markets.†Journal of Business Finance and Accounting, 26 (1 &2), pp. 83-101.

Kyle, A.S., (1985). “Continuous Auctions and Insider Trading.†Econometrica, 53 (6), pp. 1315-1336.

Nelson, D. B. (1991). “Conditional Heteroskedasticity in Asset Returns: A New Approach.†Econometrica, 59 (2), pp. 347-370.

Ross, S., (1989). “Information and Volatility: The No-Arbitrage Approach to Timing and Resolution of Irrelevancy.†Journal of Finance, 44 (1), pp. 1-17.

Shiller, R. J. (1979). “The Volatility of Long-Term Interest Rates and Expectations Models of the Term Structure.†Journal of Political Economy, 87 (6), pp. 1190-1219.

Takens, F. (1984). “On the Numerical Determination of the Dimension of an Attractor in Dynamical Systems and Bifurcations.†Lecture Notes in Mathematics, Springer-Verlag Publishing, Berlin.

Weiss, A. (1984). “ARMA Models with ARCH Errors.†Journal of Time Series Analysis, 5 (2), pp. 129-143.