Analyzing Stock Market Linkages: Exploring Volatility Spillover Effects Between SGX and NSE Nifty Using ADCC GARCH Model

In the current era of globalized investments, this study investigates the intricate interconnectivity of stock markets among nations, focusing on spill-over effects analyzed through SGX NIFTY and NSE NIFTY indices using the ADCC GARCH Model and VAR Model. Spanning two decades from November 1, 2001, to January 1, 2023, the research employs advanced econometric tools, including the “RUGARCH” and “RMGARCH” packages in R Studio. Monthly settlement prices undergo rigorous testing with ADF, KPSS, ARCH LM, Jarque Bera, and Ljung-Box tests. The central objective is to uncover dynamic conditional correlations, crucial for informed portfolio diversification decisions. The study utilizes the Asymmetric Dynamic Conditional Correlation (ADCC GARCH) model to explore market correlations. Additionally, the Diebold and Yilmaz Spill-over Index methodology within a Vector Autoregressive framework (VAR) is employed to comprehensively assess within and cross-market spill-overs. The findings provide actionable insights for market participants, including investors and portfolio managers, facilitating the strategic determination of optimal portfolio weights and dynamic hedging ratios to mitigate contagion risk during crisis periods. This extends to decision-makers aiming to mitigate the cascading effects of stock market disturbances. Significantly, the research uncovers heightened spillovers during the tumultuous 2008–2009 global financial meltdown and the unprecedented COVID-19 crises of 2019 and 2021. Moreover, the analysis reveals positive volatility spillover between NSE and SGX, underscoring the interdependence of these markets. This abstract encapsulates the study’s comprehensive examination of international market dynamics and its practical implications for risk management and decision-making.