Transmission of Shock across International Stock Markets: An Econometric Analysis

Shalini Talwar and Jayant Pansare
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Shalini Talwar: K J Somaiya Institute of Management Studies and Research, Mumbai, India
Jayant Pansare: K J Somaiya Institute of Management Studies and Research, Mumbai, India

Economics and Applied Informatics, 2018, issue 1, 110-119

Abstract: The risk of spillover of volatility among international stock markets has increased manifold and it needs to be diagnosed comprehensively. In this paper, the authors have used 11 stock indices to identify influential markets and detect the direction of transmission of shock across markets in different time zones using Granger causality test, Johansen cointegration test and vector autoregression. The findings of VAR show that the forecast error at the 10-day horizon explained by their own innovation is highest for the Australian and Chinese markets followed by Japan, India, Brazil and Russia.Markets of Germany, UK, USA and Canada are influenced by the Australian market. In fact, the Australian market is seen to be the most influential market among the markets under the study. The impact of Chinese and Canadian markets is found to be the least. These results can be useful for optimal option valuation, effective portfolio allocation and performance benchmarking

Keywords: Block Exogeneity Wald; Granger Causality; Stock Markets; Johansen Cointegration; Shock; Variance Decomposition; Volatility Spillover (search for similar items in EconPapers)
Date: 2018
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