Volatility Spillover Among the Sustainable Indices of Emerging Markets: Evidence from Pre-COVID and COVID Periods

Abstract

This study investigated the dynamic volatility spillover among the sustainable stock indices of emerging markets such as China, India, South Korea, Thailand, Indonesia and Malaysia. To analyse the return, shock and volatility spillover among these emerging sustainable indices (SIs) during the pre-COVID and COVID periods, the BEKK model has been used. The study also estimated the optimal portfolio weights. The results indicate the presence of return and volatility spillover among the SIs during pre-COVID and COVID periods. The sustainable index of China has been dominant in impacting the return of the two major markets, India and South Korea. The SIs of markets have been significantly affected by their own shock and volatility during both periods. The bi-directional shock spillover effect exists among some pairs of SIs. The study also found that volatility spillover is more during the COVID-19 period. Surprisingly, this research discovered that Malaysia’s sustainable index has impacted the volatility of other major Asian markets during the crisis period. The portfolio weights also favour investments in the sustainable index of Malaysia both in pre-COVID and COVID phases. The study advises the stakeholders to carefully watch the behaviour of SIs to diversify the risk.