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Volatility Spillovers from the US to Indian Stock Market: A Comparison of GARCH Models

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  • K Kiran Kumar
  • Chiranjit Mukhopadhyay

Abstract

This paper empirically investigates the short-run dynamic linkages between NSE Nifty in India and NASDAQ Composite in US during the period 1999-2001, using intra-daily data which determine the daytime and overnight returns. Specifically, the study employs the most popular MGARCH model, to capture the inter-linkages between NASDAQ and NSE equity markets and compares performance of MGARCH model with other models, such as two-stage GARCH model and a simple ARMA-GARCH model, employed in Kumar and Mukhopadhyay (2002). The paper reports that the simple ARMA-GARCH model performs better than the more complex MGARCH model. The volatility spillover effects from NASDAQ Composite are only significant implying that the conditional volatility of Nifty overnight returns is imported from US. It also found that on an average the effect of NASDAQ daytime return volatility shocks on Nifty overnight return volatility is 9.5% and that of Nifty daytime return is a mere 0.5%. In out-of-sample forecasts, however, it was found that including the information revealed by NASDAQ day trading provides only better forecasts of the level of Nifty overnight returns but not its volatility.

Suggested Citation

  • K Kiran Kumar & Chiranjit Mukhopadhyay, 2007. "Volatility Spillovers from the US to Indian Stock Market: A Comparison of GARCH Models," The IUP Journal of Financial Economics, IUP Publications, vol. 0(4), pages 7-30, December.
    • Handle: RePEc:icf:icfjfe:v:05:y:2007:i:4:p:7-30
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    Cited by:

    1. Bhattacharjee, Kaushik & Bang, Nupur Pavan & Mamidanna, Sravya, 2014. "Transmission of pricing information between level III ADRs and their underlying domestic stocks: Empirical evidence from India," Journal of Multinational Financial Management, Elsevier, vol. 24(C), pages 43-59.
    2. Paramita Mukherjee, 2011. "An exploration on volatility across India and some developed and emerging equity markets," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 18(2), pages 79-103, December.
    3. Dufrénot, Gilles & Keddad, Benjamin, 2014. "Spillover effects of the 2008 global financial crisis on the volatility of the Indian equity markets: Coupling or uncoupling? A study on sector-based data," International Review of Financial Analysis, Elsevier, vol. 33(C), pages 17-32.

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