Volatility and Contagion Effect: Evidence from SAARC Region

Abstract

This paper empirically test the presene of contagion effect and volatility in SAARC region caused by US subprime mortgages crisis. The stock market of four countries i.e. Pakistan, India, Bangladesh and Sri Lanka have been analyzed and times series data have been collected from World development Indicators from 1995 to 2015. First, it presents the descriptive statistics and then the GARCH model have been applied on variables i.e. turnover ratio,market capitalization and value added ratio for each country separately. The result of this study reveals that presence of contgaion effect and volalilty within these markets. India was found to have the greatest impact as compare to the other countries because of its dominant stock market then Pakistan, Sri lank and Bangledesh respectively. This study is significant for policy markets, regulators, porfolio investors to reduce the deterioting impact of financial turmoil. This study also suggests to explore the channels of contagion in SAARC region for the most recent and on-going crsisi i.e. COVID-19