Stock Market Linkages: Evidence From the US, China and India During the Subprime Crisis

Amanjot Singh and Parneet Kaur
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Parneet Kaur: Punjabi University, Patiala, Punjab, India

Timisoara Journal of Economics and Business, 2015, vol. 8, issue 1, 137-162

Abstract: The Subprime crisis spillovered the returns and volatility from the US stock market to the other integrated economies. The present study attempts to analyze the stock market linkages between the US, India and China, especially during the US subprime Crisis. The technique of Tri-Variate Vector Autoregression and the Spillover Index has been employed so as to analyze the relations during the time period 2007 to 2009. To estimate the time varying risk parameters, the technique of Threshold Generalized Autoregressive Conditional Heteroskedastic [TGARCH (1,1)] model has been used. A uni-directional causality has been observed from the US market to the Indian and Chinese market, whereas another unidirectional causality has also been spotted running from the Chinese market to the Indian market in the context of stock market returns during the crisis period. A uni-directional volatility spillover from the US to the Indian market and from the Indian to the Chinese market has been found to be significant. As per the volatility Spillover Index, the cross market impact on the volatility reduces over a time period 2007-2009, due to the increased impact of the past volatility and the presence of 'leverage effect'. The falling returns added to the volatility in the respective markets. The efficient tests of causality inspired by Hill (2007) reported an indirect impact of the US market volatility on the Chinese market via Indian. The portfolio managers should discount this information well ahead of time to maintain the portfolio values by taking positions in futures and options market.

Keywords: Financial Crisis; Spillover; Variance Decomposition; Vector Autoregression Model; Volatility. (search for similar items in EconPapers)
JEL-codes: F00 F36 G01 G15 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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