Interlinkages And Volatility Transmission Between The Stock Market Of Developed Countries And India

Abstract

Purpose:Global Financial liberalizationhas increased the integration of the stock market worldwide. The conditional volatility of the financial market is an important factor responsible for the stock market return and reaping the benefits of diversification for investors. The purpose of the paper is to estimates the interdependence of volatility of stock indices of countries like India, China, USA, and Japan.
Design/ Methodology:GARCH model has been used to find the co-movement and volatility transmission among the stock markets. Daily closing prices of NIFTY (India), SENSEX (India), NIKKEI (Japan), NASDAQ (U.S.) and, SHANGHAI (China) over the period from January 2008 to December 2019S has beenusedinthestudy.
Findings: The result indicates that ARCH and GARCH effect is significant among Nifty, SENSEX and NASDAQ but not significant for SHANGHAI and NIKKEI stock indices.
Research Implication:The volatility interactions between Nifty and NASDAQ are more prominent as compared to other stock indices considered. The US market act as an leading indicator for the Indian stock market.
Practical Implication: The research can aid the investors in forming a diversification strategy. The co-movement of stock indices can aid in developing an optimum portfolio that maximizes return and reduces risk. The policymakers can also benefit from the study in establishing a lead-lag relationship of the transmission among stock indices.Investors and researcher also have a keen interest to study the interdependence of the financial market are suggested to study the movements of NASDAQ before making investment decision for Nifty.
Originality / Value: The study adds to the body of literatureby exploring the financial integration among various indices. The research also discusses lead-lag relationship of selected stock market specifically post subprime crises.