The Indian economy post structural economic reform in mid-1990s is getting integrated with rest of the world. Allowing foreign institutional investors (FIIs) to invest in Indian stock markets is an example of this integration. Volatility in Indian stock markets is increasing and it is now being hypothesized that it is getting increasingly affected by volatility from global stock markets. This article attempts to find out the volatility spillover of developed and developing economies on Indian stock exchanges, primarily the returns and volatility levels at India’s oldest stock exchange BSE (The Stock Exchange, Mumbai). This article analyzes daily index return data from a set of nine countries (including India) from 4 January 2000 to 17 July 2009 and examines levels of cointegration and unidirectional volatility spillovers using Johanssen’s Cointegration test and GARCH (1,1) model with BHHH algorithm. The results show evidence of cointegration along with increasing impact of several international indices on returns and volatility levels of the BSE Sensex of India.
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