An empirical analysis of volatility spillovers in SAARC stock markets using multivariate garch models

Examining the persistence of volatility transmission over an extended timeframe, regardless of specific events, reveals significant importance, as it uncovers the inherent fundamental and structural drivers that give rise to volatility. However, previous research in South Asia is minimal and has primarily concentrated on periods of specific events or crises. Thus, it is crucial to understand South Asian equity markets' long-term interconnections beyond specific events that have not been addressed previously. To estimate the volatility transmission source, direction, and intensity among the select South Asian (India, Sri Lanka, Bangladesh, and Pakistan) equity markets, this study employed four-dimensional Multivariate GARCH models (BEKK, Simple Diagonal VECH, Dynamic Conditional Correlation and Constant Conditional Correlation) for examining the long-term interconnectedness, utilising daily data from January 2013 to March 2023. The findings reveal a relatively low degree of volatility transmission and more influence of spillovers within the same market than spillovers across different markets, indicating minimal inter-market connectedness in South Asian countries. As a result, this research contributes to a deeper understanding of market behaviour and volatility in South Asian equity markets, highlighting the favourable conditions for portfolio managers and foreign institutional and domestic investors to formulate diversification strategies.