Volatility spillover among market indices; A case of Pakistan stock exchange (PSX)

Abstract

The researchers are inclined to study the return and volatility spillover of markets after the financial crisis's year (2007-2008) and its impact widespread to other countries. This study of return and volatility spillover specific to two indices of Pakistan (KSE-30 and KSE-100) is of significance to Corporations, Portfolio Management Firms, Mutual Funds Management Firms and investors in a way that they invest over the benchmark- KSE-100 performance and they totally ignore KSE-30 index, which derives more than 50% of market capitalization. This study focuses on providing investors insight about the manipulation of KSE-1 00 through KSE-30 by validating return and volatility spillover between the indices using daily data from 301h June 2009 to 31 51 December 2018, extracted through Karachi stocks and using fmancial econometrics models, GAR.CH, MGARCH, ARMA, Q statistics, and t-student distribution. Using the analysis of aforementioned models, we concluded the presence of return spillover between KSE-30 and KSE-1 00 and no effect of volatility spillover from one index to another.