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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

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.
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https://hal-amu.archives-ouvertes.fr/hal-01474429
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Submitted on : Wednesday, February 22, 2017 - 5:25:10 PM
Last modification on : Thursday, November 4, 2021 - 11:58:07 AM

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Gilles Dufrénot, Benjamin Keddad. 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. International Review of Financial Analysis, Elsevier, 2014, 33 (C), pp.17--32. ⟨hal-01474429⟩

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