Information Leadership and Volatility Spillover Across the Countries: A Case of Indian and Other Asian Equity Markets

Abstract

Return and volatility spillover among Indian stock market with that of 12 other developed and emerging Asian countries over a period from November 1995 to May 2005 is studied. Daily opening and closing prices of all the major equity indices from the sample countries are examined by applying the GARCH model [Engle (1982) and Bollerslev (1986)] to explore the possibility of information leadership and volatility spillover across the national markets. Apart from different degrees of correlations, both in terms of return and squared return series, among Indian stock market with that of other Asian countries, the contemporaneous intraday return spillover among India and almost all the sample countries are found to be positive and significant. Based on the comparison among the spillover effects in both intraday and overnight return of the domestic market, it will be clear that the foreign market return spillover affect the Indian open-to-close return much greater than its close-to-open return. But in case of volatility spillover from the foreign markets to India, most of the new and pertinent information would be revealed in the opening prices of NIFTY and/or SENSEX, thereby having a stronger effect on the close-to-open (overnight) return in Indian equity market.