Investigating Impact of US, Europe, Frontier and BRIC Stock Markets on Indian Financial Stress Index

• Authors: Singh Amanjot , Singh Manjit
• Languages of publication: EN

Abstracts

EN

The emerging markets are slowly opening up their respective financial markets to foreign investments, thereby making the latter markets more sensitive to cross-market information transmissions. There are different transmission mechanisms ranging from trade related to financial linkages. However, statistically, both price discovery and conditional volatility act as transmission mechanisms, whereby information in one stock market has an impact on another. In this regard, the present study attempts to empirically analyse the impact of global information transmissions, i.e., stock market returns and conditional volatility on overall Indian financial stress and its various sub-components by employing different econometric models comprising Johanson Cointegration, Vector Autoregression and its various counterparts, Component GARCH (1,1) model and multivariate OLS regression models ranging from October 2003 to October 2014. The study firstly constructed Indian financial stress index owing to non-existence of a standardised index. The results reported that the one month lagged returns in the BRIC stock markets have an impact on the financial stress index of India. The stress in the Indian financial system responds statistically signifi cantly to the Brazilian and Chinese market returns, with a greater degree of integration after two months. A statistically signifi cant impact of the shortrun volatility has also been observed running from the European markets to the Indian financial system contemporaneously. Furthermore, unexpected volatility in the BRIC markets also has an impact on the Indian financial stress contemporaneously as well as dynamically. The present study provides an insight to the international investors regarding the response of Indian financial system and its sub-components toward global information transmissions.

Keywords

EN

BRIC; financial stress; frontier markets; transmission

• Publisher: Uniwersytet Warszawski. Wydział Nauk Ekonomicznych
• Journal: Journal of Banking and Financial Economics
• Year: 2016
• Issue: 2(6)
• Pages: 23-44

Dates

online

2016-06-16

Contributors

author

Singh Amanjot

• University School of Applied Management, Punjabi University, Patiala, India

author

Singh Manjit

• University School of Applied Management, Punjabi University

References

• Angkinand, A. P., Barth, J. R., & Kim, H. (2010). Spillover effects from the U.S. financial crisis: Some time-series evidence from national stock returns. In G. Benton (Ed.), The Financial and Economic Crises: An International Perspective (pp. 24-52). Cheltenham, UK: Edward Elgar.
• Balakrishnan, R., Danninger, S., Elekdag, S., & Tytell, I. (2011). The Transmission of Financial Stress from Advanced to Emerging Economies. Emerging Markets Finance and Trade, 47(2), 40-68.
• Bhar, R., & Nikolova, B. (2007). Analysis of Mean and Volatility Spillovers using BRIC Countries, Regional and World Equity Index Returns. Journal of Economic Integration, 22(2), 369-381.
• Bianconi, M., Yoshino, J. A., & Machado, M. O. (2013). BRIC and the U.S. financial crisis: An empirical investigation of stock and bond markets. Emerging Markets Review, 14, 76-109.
• Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroskedasticity. Journal of Econometrics, 31, 307-327.
• Booth, G. G., So, W. R., & Tse, Y. (1999). Price discovery in the German equity index derivatives markets. The Journal of Futures Markets, 9(6), 619-643.
• Christie, A. A. (1982). The stochastic behavior of common stock variances: Value, leverage and interest rate effects. Journal of Financial Economics, 10, 407–432.
• Christopoulos, A. G., Mylonakis, J., & Koromilas, C. (2011). Measuring the Impact of Financial crisis on International Markets: An Application of the Financial Stress Index. Review of European Studies, 3(1), 22-34.
• Dasgupta, R. (2014). Integration and dynamic linkages of the Indian stock market with BRIC: An empirical study. Asian Economic and Financial Review, 4(6), 715-731.
• Davig, T., & Hakkio, C. (2010). What Is the Effect of Financial Stress on Economic Activity? Retrieved from https://www.kansascityfed.org/publicat/econrev/pdf/10q2Davig_Hakkio.pdf
• Ding, Z., Granger, C. W. J., & Engle, R. F. (1993). A long memory property of stock market returns and a new model. Journal of Empirical Finance, 1(1), 83-106. doi: 10.1016/0927-598(93)90006-D.
• Dooley, M. P., & Hutchison, M. M. (2009). Transmission of the U.S. subprime crisis to emerging markets: Evidence on the decoupling-recoupling hypothesis. Retrieved from http://sciie.ucsc.edu/workingpaper/2009/DooleyHutchison%20%20Emerging%20Mrkt%20linkages%20March%2031.pdf
• Enders, W. (2014). Applied Econometric Time Series. New Jersey: John Wiley & Sons.
• Frank, N., & Hesse, H. (2009). Financial Spillovers to Emerging Markets During the Global Financial Crisis. Retrieved from http://core.ac.uk/download/pdf/6605059.pdf
• Gagnon, l., & Karolyi, A. G. (2006). Price and volatility transmisison across borders, Financial Markets, Institutions and Instruments, 17(3), 107-158.
• Goldstein, M., & Xie, D. (2009). The Impact of the Financial Crisis on Emerging Asia. Retrieved from http://www.frbsf.org/economic-research/files/09_Goldstein.pdf
• Gujarati, D., Porter, D., & Gunasekar, S. (2013). Basic Econometrics. New Delhi: McGraw Hill Education.
• Hakkio, C. S., & Keeton, W. R. (2009). Financial stress: What is it, How can it be measured, and Why does it matter?, Economic Review, Q(II), 5-50.
• Illing, M., & Liu, Y. (2006). Measuring financial stress in a developed country: An application to Canada. Journal of Financial Stability, 2(3), 243-265.
• Kharchenko, I., & Tzvetkov, P. (2013). Estimation of Volatilities and Spillover Effects Between Developed and Emerging Market Economies. Retrieved from http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=3801343&fileOId=3813321
• Kliesen, K. L., Owyang, M. T., & Vermann, E. K. (2012). Disentangling Diverse Measures: A Survey of Financial Stress Indexes. Federal Reserve Bank of St. Louis Review, 94(5), 369-397.
• Kumar, R., & Dhankar, R. S. (2009). Asymmetric Volatility and Cross Correlations in Stock Returns under Risk and Uncertainty. Vikalpa: The Journal for Decision Makers, 34(4), 25-36.
• Lall, S., Cardarelli, R., & Elekdag, S. (2008). Financial Stress and Economic Downturns. Retrieved from http://www.imf.org/external/pubs/ft/weo/2008/02/pdf/c4.pdf
• Manamperi, N. P. (2015). A Comparative Analysis on US Financial Stress Indicators. International journal of Economics and Financial issues, 5(2), 613-623.
• Morales, M. A., & Estrada, D. (2010). A financial stability index for Colombia. Annals of Finance, 6, 555-581.
• Mukherjee, K. N., & Mishra, R. (2010). Stock Market Integration and Volatility Spillover: India and its Major Asian Counterparts. Research in International Business and Finance, 24(2), 235-251.
• Park, C., & Mercado, R.V. (2013). Determinants of financial stress in Emerging Market Economies. Retrieved from http://www10.iadb.org/intal/intalcdi/PE/2013/12502.pdf
• Pentecost, E. J., & Moore, T. (2006). Financial Liberalisation in India and a New Test of the Complementarity Hypothesis. Economic Development and Cultural change, 54(2), 487-502.
• Rachdi, H. (2013). The Impact of the International Financial Crisis on the Stock Market Return: The Case of Tunisian Stock Exchange. Journal of Empirical Economics, 1(2), 67-74.
• Rittler, D. (2012). Price discovery and volatility spillovers in the European Union emissions trading scheme: A high-frequency analysis. Journal of Banking & Finance, 36(3), 774-785.
• Roye, B. V. (2014). Financial Stress and economic activity in Germany and the Euro Area. Empirica, 41(1), 101-126. doi: 10.1007/s10663-013-9224-0
• Sandahl, F., J., Holmfeldt, M., Rydén, A., & Strömqvist, M. (2011). An index of financial stress for Sweden. Sveriges riksbank economic review, 2, 49-67.
• Sims, C. A. (1980). Macroeconomics and Reality. Econometrica, 48(1), 1-48.
• Sum, V. (2013). Impulse Response Functions and Causality Test of Financial Stress and Stock Market Risk Premiums. International Journal of Financial Research, 4(1), 1-4.
• Wallace, C. (2013). Financial Stress and its Impact on Economic Activity: Evidence from Jamaica. Retrieved from http://www.ccmf-uwi.org/files/publications/conference/2013/1_2-Wallace-p.pdf
• Worthington, A., & Higgs, H. (2004). Transmission of equity returns and volatility in Asian developed and emerging markets: A multivariate GARCH analysis. International journal of finance and economics, 9(1), 71-80.
• Yiu, M. S., Ho, W. Y. A., & Jin, L. (2010). A Measure of Financial Stress in Hong Kong Financial Market — the Financial Stress Index. Retrieved from http://www.hkma.gov.hk/media/eng/publication-and-research/research/research-notes/RN-02-2010.pdf

Identifiers

ISSN

/2353-6845

DOI

10.7172/2353-6845.jbfe.2016.2.2