Spillover effects of the 2008 global financial crisis on the volatility of the Indian equity markets: Coupling or uncoupling? A study on sector-based data

Gilles Dufrénot () and Benjamin Keddad ()

International Review of Financial Analysis, 2014, vol. 33, issue C, 17-32

Abstract: This paper focuses on the following question: has the global financial stress in the US markets during the subprime crisis induced a persistent volatility of Indian equity stocks? We answer this question using sector-based data and we propose a simple stochastic volatility model augmented with exogenous inputs (financial stress indicators in the US market). We derive analytically the autocorrelation of the squared returns using cross-moments and estimate the impact of several variables such as the CDS spreads, the ABCP spreads, market liquidity, the volatility of the S&P 500 using a Kalman filter approach with the impact captured through Almon polynomials. We find a strong evidence of persistent volatility irrespective of the sector and interpret this finding as the result of two factors: the lower liquidity of the Indian equity markets during the subprime crisis and a wake-up call effect.

Keywords: Indian equity markets; Coupling; Stochastic volatility (search for similar items in EconPapers)
JEL-codes: F30 G15 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Working Paper: Spillover effects of the 2008 global financial crisis on the volatility of the Indian equity markets: Coupling or uncoupling? A study on sector-based data (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:33:y:2014:i:c:p:17-32

DOI: 10.1016/j.irfa.2013.07.004

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