Impact of return and volatility spillover from banking industry to other industries: An evidence from Pakistan

Abstract

This article aims to examine the transmission of return and volatility spillover from the banking industry to other industries in Pakistan. The study uses daily stock prices from 2005 to 2018 from the financial and non‐financial sectors listed at Pakistan stock exchange. The KSE‐100 index is used as a basis for the selection he industries and companies. The banking stock return ARMA‐GARCH in mean model is used to measure the return and volatility spillover. The time‐varying conditional correlation and asymmetric effect are explored using the DDC and ADDC models. Return and volatility spillover are found across the various industries during the period, indicating limited evidence of diversification. The DCC‐GARCH model shows that there is a time‐varying conditional correlation and asymmetric behaviour of the data.