A study on the spillover of stock market volatility between India and US in the context of the global financial crisis of 2007–08

Abstract

The global financial crisis of 2007-08 that had originated in the US rapidly invaded all over the world and adversely affected the real as well as the financial sectors of many economies. In this backdrop, the present study dwells upon the nature of volatility spillover effects across the stock markets of India and US from 2004 to 2013. To study the impact of the financial crisis on the concerned stock markets three subsamples of the data have been considered, viz., Pre-Crisis, In Crisis and Post-Crisis. This study applies a Diagonal VECH model for volatility estimation under an intercountry structure for each subperiod. The empirical findings are analysed and compared considering each market as well as country profile and different phases of the crisis. The study concludes that the impact of the global financial crisis was hard felt in the Indian stock market through vigorous spillover of volatility.