DefinePK

Research Objective

To investigate and understand the volatility and its spillover from Crude Oil and Gold Markets to the stock markets of Pakistan, India, and China.

Methodology

Univariate analysis using the GJR GARCH Model. Daily closing prices for Crude Oil, Gold, and the stock markets of Pakistan, China, and India were collected from January 4, 2010, to December 30, 2019. Returns were calculated using the natural log function.

Methodology Flowchart

                        graph TD;
    A["Data Collection: Daily Closing Prices Oil, Gold, Pakistan, China, India Stocks"] --> B["Return Calculation"];
    B --> C["Unit Root Test"];
    C --> D["LM Test"];
    D --> E["ARCH Test"];
    E --> F["GJR GARCH Model Application"];
    F --> G["Analysis of Mean and Variance Equations"];
    G --> H["Spillover Effect Assessment"];
    H --> I["Results and Discussion"];
    I --> J["Conclusion"];                    

Discussion

The study found that while volatility exists in the Oil and Gold markets, this volatility does not significantly transmit to the stock markets of Pakistan, China, and India. This suggests that the adverse impacts of commodity market volatility are contained within the commodity markets themselves and do not significantly affect the selected stock markets. The findings are contrasted with other studies that found stronger spillover effects, attributing the differences to contextual factors and the specific markets analyzed.

Key Findings

- ARCH effect exists in the Oil and Gold Markets.
- Mean volatility was not found in the selected stock markets, but variance volatility was present.
- No evidence of volatility spillover was found from the Oil and Gold Markets to the stock markets of Pakistan, China, and India.

Conclusion

The research concludes that ARCH effects are present in the Oil and Gold markets, and volatility exists in the variance equations of these markets. However, there is no significant evidence of volatility spillover from the Oil and Gold markets to the stock markets of Pakistan, China, and India. The study highlights the importance of considering contextual factors when analyzing market interdependencies and suggests future research using advanced methodologies.

Fact Check

- Data duration: January 04, 2010, to December 30, 2019. (Confirmed)
- GJR GARCH Model was used for analysis. (Confirmed)
- ARCH effect exists in Oil and Gold Markets. (Confirmed by Table 3)

Mind Map