Modelling Co-movement of Different Sectors in Dhaka Stock Exchange (DSE) Using Asymmetric BVAR-GARCH Models

Abdul Hannan Chowdhury^1, and Mohammad Kamrul Arefin¹

¹Faculty of Business Administration, Eastern University, Dhaka, Bangladesh

Cite this paper:
Abdul Hannan Chowdhury and Mohammad Kamrul Arefin. Modelling Co-movement of Different Sectors in Dhaka Stock Exchange (DSE) Using Asymmetric BVAR-GARCH Models. Journal of Finance and Economics. 2017; 5(3):105-117. doi: 10.12691/jfe-5-3-3

Abstract

This paper tries to investigate the financial shock transmission dynamics using daily return data under different sectors traded in Dhaka Stock Exchange (DSE). Bayesian VAR model was used as conditional mean in GJR-GARCH, scalar-diagonal VECH and BEKK GARCH models to test return and volatility spillover effects. Lagged squared residuals and lagged conditional variances were used as variance regressors in conditional variance of GJR-GARCH to test the spillover effects. Finding reveals a highly significant memory effect on all sector returns except one. Asymmetric versions of GARCH, VECH and BEKK identified significant effect of news about volatility, past memory and differential effect of bad news on conditional volatility of almost all series. GJR-GARCH results identified pharmaceutical sector spillover free yet all other pairs were found to be unidirectional or in some cases bidirectional. Co-volatility among almost all sectors is also observed from VECH and BEKK output.

Keywords:
volatility spillover return spillover Bayesian VAR GJR-GARCH VECH BEKK DSE

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