Examining volatility spillover between Asian stock markets

This study examined the volatility spillover effects between Asian stock markets,i.e.,Pakistan,India,Sri Lanka,China Mainland,Japan and China Hong Kong.The daily data was considered from the period 4^(th) January,1999 to 1^(st) January,2014,consisting 5 trading days from Monday to Friday.The volatility spillover between stock markets was captured by using GARCH(generalized auto regressive conditional heteroskedasticity)model.The empirical analyses show evidence of significant bidirectional spillover of return and volatility between China Mainland and Japan.The results also show significant bidirectional volatility transmission between the following equity markets;China Hong Kong and Sri Lanka,China Mainland and Sri Lanka.The significant unidirectional transmissions of stock market volatility are found to be flowing from;India to China Mainland,Sri Lanka to Japan,Pakistan to Sri Lanka,China Hong Kong to India and Japan.These results are important for economic policy makers in order to safeguard the financial sector from international financial shocks.The investors can use this information for making efficient portfolio which will reduce their risk and enhance their returns.