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Assessment of return and volatility spillover across sectors' indices: evidence from Pakistan stock exchange

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  • Hafiza Muntaha Khalid
  • Sadia Farooq
  • Faiza Liaqat
  • Muhammad Naeem

Abstract

This paper examines the dynamics of return and volatility transmission between several sectors of Pakistan Stock Exchange (PSX). We employed GARCH(1,1) model and our results demonstrate that the most influential sector regarding the return spillover is power generation and distribution sector, and regarding volatility spillover, highly influential sector is automobile sector indicating that these sectors are the main drivers of spillover effect. Whereas, the most suggested sectors for investment are Automobile Assembler and Power generation and distribution sectors, as these are least influenced by other sectors' spillover. The investors and portfolio managers can use such findings as a guideline in making a healthy portfolio resulting in reduced risk to their investment. The well-informed decisions of the investors can, in turn, facilitate the growth of economy.

Suggested Citation

  • Hafiza Muntaha Khalid & Sadia Farooq & Faiza Liaqat & Muhammad Naeem, 2021. "Assessment of return and volatility spillover across sectors' indices: evidence from Pakistan stock exchange," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 14(5), pages 477-496.
    • Handle: RePEc:ids:ijmefi:v:14:y:2021:i:5:p:477-496
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    References listed on IDEAS

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    1. Robinson, P. M., 1991. "Testing for strong serial correlation and dynamic conditional heteroskedasticity in multiple regression," Journal of Econometrics, Elsevier, vol. 47(1), pages 67-84, January.
    2. Pirgaip, Burak & Ertuğrul, Hasan Murat & Ulussever, Talat, 2021. "Is portfolio diversification possible in integrated markets? Evidence from South Eastern Europe," Research in International Business and Finance, Elsevier, vol. 56(C).
    3. Serda Selin Öztürk & Engin Volkan, 2015. "Intraindustry Volatility Spillovers in the MENA Region," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 51(6), pages 1163-1174, November.
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    Cited by:

    1. Wan, Jieru & Yin, Libo & Wu, You, 2024. "Return and volatility connectedness across global ESG stock indexes: Evidence from the time-frequency domain analysis," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 397-428.

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