Volatility Spillovers among Emerging Asian Stock Markets along Chinese Belt and Road Initiative: Evidence from Diebold and Yilmaz (2012) Spillover Index Method

Abstract

This paper investigates the dynamic volatility spillovers among emerging Asian stock markets which are active members of Chinese Belt and Road Initiative from 2005-2023 through spillover index framework based on generalized forecast error variance decomposition proposed by Diebold and Yilmaz (2012). Using daily return based realized volatility proxies and 200-days Rolling Window VAR framework, we found that more than half of the market volatility is due to cross market spillovers. Moreover, Malaysian and Philippine stock markets acted as major volatility transmitters and Sri Lanka and Pakistan equity markets appeared as major volatility spillover receivers.  Additionally, volatility significantly amplified during major global events like GFC, Chinese stock market crash and Covid-19 Pandemic elevating systemic risk and diminishing the benefits of regional portfolio diversification.