International stock markets Integration and dynamics of volatility spillover between the USA and South Asian markets: evidence from Global financial crisis

Abstract

Purpose The purpose of this paper is to investigate the cointegration and volatility spillover dynamics between the USA and South Asian stock markets, namely, India, Pakistan and Sri Lanka. The main objective of this study is to provide the knowledge about integration of financial market and volatility spillovers before, during and after global financial crisis to investors, fund managers and policy-makers. Design/methodology/approach The Johansen and Juselius cointegration test, Granger Causality test and bivaraite EGARCH model have been applied in this study to examine integration and volatility spillovers between selected stock markets. Findings The findings show that long-term integration between the USA market and South Asian emerging stock markets. It is found that USA stock market has causal relationship with emerging stock markets in short-term. The findings of EGARCH model reveal that asymmetric volatility spillover effects significant in all selected stock markets in pre, during and post-crisis periods. Furthermore, significant volatility spillover is found from stock markets of USA to all selected South Asian markets during and post-crisis periods. However, volatility spillovers from USA to India and Sri-Lanka markets are significant, while insignificant in case of Pakistani market in pre-crisis period. Overall, we find that returns and volatility spillover effects are higher in financial crisis period as compared to non-financial crisis period. Practical implications The findings of this paper have important implications for investors, portfolio managers and policy-makers. They can take potential benefits from international portfolio diversification by considering all these facts. The understanding and knowledge of across volatility transmission help them to maximize the gains from diversification and minimize the risk. Policy-makers can develop such strategies which protect the markets of these economies from future financial crisis. Originality/value Although in finance literature numerous studies have been conducted on integration between different stock markets, most of the studies investigated the integration and volatility spillovers between developed stock markets. However, many studies also analyzed the integration among emerging stock markets in literature review but it is hard to find studies in the context of South Asian stock markets on the effect of global financial crisis on stock markets. The main contribution of this study is to investigate the stock markets integration and volatility transmission between the USA and South Asia by considering the effect of recent 2007 US subprime financial crisis.

Co-movement dynamics of US and Chinese stock market: evidence from COVID-19 crisis

“…In the interest of simplicity, there heteroskedasticity and autocorrelation problem must be present in datasets. Following Habiba et al (2020), the ARCHLM test is employed to measure the above assumption. For the generation of volatility residuals of stock indices, authors have used the GARCH (1, 1) model separately on each dataset.…”

“…The closing prices of stock indices of China and the USA are collected from yahoofinance.com. To capture detailed mode information, the daily continuous compounding returns are used in the current study (Habiba et al, 2020;Li & Giles, 2015). The S&P 500 index equity market of the USA and China are considered.…”

“…The study is carried out to explore and explain the short t-term and long-run integration between the USA and China from the period covering from 2010 to 2021, comprising of two sub-period, namely the pre-covid crisis (2010-2019) and during a crisis (2019)(2020)(2021). To examine the long-run association between the US and Chinese markets during and pre-crisis, the Johansen and Juselius ( 2009) cointegration is used, and for the short-run association, the Granger Causality test is applied (Habiba et al, 2020). The ADF test and PP test of unit root tests are used to determine the stationarity of the datasets.…”

The volatility characteristics of Vietnamese coffee export price and transmission mechanism of influencing factors: a Markov switching approach

“…The relationship between futures market price and spot market price has been examined by Bekiros and Diks (2008), Huang et al (2009), Hernandez andTorero (2010), JunYu (2013), NIRMALA and Swarna (2017), Kapar and Olmo (2019), Kim and Lim (2019), Guntur and Shirodkar (2020), Habiba et al (2020) and so on. Most scholars have confirmed that there is cointegration between spot price and futures price.…”

Sub-prime Crisis or COVID-19: A Comparative Analysis of Volatility in Indian Banking Sectoral Indices

“…A negative impact was revealed on the Kuala Lumpur Stock Exchange and the Shanghai Stock Exchange. Habiba et al (2020) found a long-term integration and short-term causal relation between the US and South Asian emerging stock markets. The study applied the EGARCH model that revealed asymmetric volatility spillover effects in all selected stock markets in pre-, during and post-crisis periods.…”