This study aims to investigate the volatility spillover between Indian and developed markets by using volatility indices.
This study examines inter-market volatility spillovers between the Indian Volatility Index (IVIX) and the volatility indices of the American, European, and Asian developed markets using the bivariate BEKK-GARCH model. The study covers the daily data ranging from January 2009 to April 2024.
The findings revealed that there exists a positive correlation between the IVIX and the volatility indices of the selected developed markets and the correlation are higher with Hong Kong and lower with the US market. Moreover, the results indicated bidirectional shock and volatility spillover between India and selected developed markets, except Japan, where volatility spillover is unidirectional from India.
The results have significant implications for policymakers, investors and portfolio managers. By understanding the co-movement between the markets, policymakers take corrective actions to mitigate the effects of spillover and to protect the investor’s interest. Moreover, investors and portfolio managers make better investment decisions by diversifying their portfolios based on the understanding of volatility linkage structure across the markets.
The current study uniquely investigates the volatility transmission between Indian and developed markets using volatility indices, previously less explored. Moreover, the study also provides a comprehensive view by considering the selected developed markets of Asian, American and European regions.
