Global Financial Crisis of 2007–08 and Volatility Spillover between the Stock Markets of India and US: A Comparison

The recent global financial crisis of 2007–08 that had originated in the USA, rapidly invaded all over the world and adversely affected the real as well as the financial sectors of many economies. In this backdrop the present study dwells upon the nature of dynamic spillover effects within and across the stock markets of India and US. For this purpose, a sample consisting of the daily return data of BSE SENSEX for India and NASDAQ Composite for US from 2004 to 2013 has been constructed. To study the impact of the financial crisis on the chosen variables three subsamples have been considered, viz., Pre Crisis, In Crisis and Post Crisis. This study applies an EGARCH model to empirically estimate volatility of each return series under an Intra Country structure and a Diagonal VECH model to estimate the same under an Inter Country structure. The empirical findings are analysed and compared considering each market as well as country profile and different phases of the crisis. The study concludes that the financial crisis of 2007–08 affected the regular pattern of return and volatility spillover both within and across the markets. However, volatility spillover is found to be more vigorous compared to the return spillover as expected.