Integration of indian capital market with us capital market: A volatility spillover study

The financial integration of different markets leads to co-movement of volatilities which further suggests volatility spillover from one market to another. The present study focuses on analyzing the integration between Indian Capital market and US Capital market. Exchange Rate, Crude oil and Gold return has also been considered for the study to see the impact of external shocks on the volatility of the markets. Daily data volumes ranging from January 2008 to October 2016 has been used and ADF Unit root test, ARCH –LM and GARCH (1,1) has been applied. All the variables are found to be non-stationary at level but become stationary after first difference. ARCH-LM test suggested presence of ARCH affect in the mean equation. The study concluded uni-directional spillover of volatility from S&P 500 to Nifty but not vice versa. Previous period’s information about return and volatility is found to explain the behavior of Nifty and S&P 500 both, but exchange rate, crude oil, and gold prices are found to affect the volatility of S&P 500 only.