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Volatility spillover among the sectors of emerging and developed markets: a hedging perspective

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  • Satyaban Sahoo
  • Sanjay Kumar

Abstract

This study empirically investigates the volatility spillover among the sectors of emerging markets, that is, India and China and developed markets, that is, the United Kingdom (UK) and the United States (US). Focusing on financial services, auto, oil and gas, Information Technology (IT), healthcare and real estate sectors, the research employs the BEKK GARCH and GO-GARCH models to analyze the daily data. Results reveal that the own market’s conditional volatility is primarily responsible for the volatility spillover in every sector. Further, the study also found evidence of major cross-market volatility spillover in the oil and gas, IT, healthcare and real estate sectors of emerging and developed markets. Specifically, the US IT sector dominated other markets’ IT sectors. The hedge ratio indicates that hedging between sectors of the emerging and developed markets is the cheapest, contrasting with the higher cost for hedging solely with the emerging or developed markets sectors. Investors are advised to monitor and rebalance their portfolios based on the volatility and dynamics of developed market sectors for optimum return. Additionally, the study found that the BEKK model is better for risk-return optimization.Assessing the volatility spillovers among markets and sectors reveals the level of capital market integration. The evolving interconnections and volatilities present diverse challenges for investors, portfolio managers, and regulators. This underscores the importance of close and continuous monitoring of sector-specific developments in both emerging and developed markets. Such vigilance enables investors and risk managers to rebalance portfolios and hedge positions more effectively and promptly. Importantly, these findings have varied implications for stakeholders across the financial landscape.

Suggested Citation

  • Satyaban Sahoo & Sanjay Kumar, 2024. "Volatility spillover among the sectors of emerging and developed markets: a hedging perspective," Cogent Economics & Finance, Taylor & Francis Journals, vol. 12(1), pages 2316048-231, December.
  • Handle: RePEc:taf:oaefxx:v:12:y:2024:i:1:p:2316048
    DOI: 10.1080/23322039.2024.2316048
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    Cited by:

    1. Sahoo, Satyaban, 2024. "Harmony in diversity: Exploring connectedness and portfolio strategies among crude oil, gold, traditional and sustainable index," Resources Policy, Elsevier, vol. 97(C).

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