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The Effect of Spillover on Volatility Forecasting: An Empirical Study in Indian Stock Market

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  • Madhusudan Karmakar
  • Girja Kant Shukla

Abstract

In this article, we have investigated whether the precision of one-step-ahead forecast of the market volatility can be improved by incorporating the spillover effect of other markets. For this, we have used the MGARCH model and shown empirically that if the group of markets is chosen judiciously so as to avoid multicollinearity, then it is indeed possible to obtain better forecasts. For this purpose, we have employed a BEKK parameterization of MGARCH models on the daily data of 10 sectors of the Bombay Stock Exchange (BSE).

Suggested Citation

  • Madhusudan Karmakar & Girja Kant Shukla, 2016. "The Effect of Spillover on Volatility Forecasting: An Empirical Study in Indian Stock Market," Metamorphosis: A Journal of Management Research, , vol. 15(1), pages 20-30, June.
    • Handle: RePEc:sae:metjou:v:15:y:2016:i:1:p:20-30
    DOI: 10.1177/0972622516629030
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    References listed on IDEAS

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