To Examine the Spillover effect between the KSE100 and S&P500 Index

Abstract

The volatility spillover is defined as the transmission of instability from market to market. It occurs when the volatility price change in one market causes a lagged impact on volatility price in another market above the local effects of market. In this study the garchmodels are used to examine the possibility of volatility transmission between the KSE100 index (Pakistan) and S&P500 index (usa); in other words, to examine how the volatility in one market mayinfluence the other and vice versa. The egarchmodel is also applied and it was observed that our attempt to analyze symmetry and persistence in the KSE100 index and the S&P500 index volatility proved that there is clear evidence that shocks to the volatitlity of the KSE100 and S&P500 indexes have asymmetric and persistent effects. It is observed from the study that the shocks to the stock returns in one market do not transmit to the other; in other words, it appears that there is no spillover effect between the two stock markets.

Keywords

• Volatility
• spillover
• GARCH
• EGARCH
• KSE100 index
• S&P500