Cross Market Volatility Spill overs: An Empirical Analysis of Transmission Effect between US (S&P 500) and Indian (NIFTY 50) Equity Markets

At Present the global economy is dynamic and unpredictable in nature and the financial panic spreads beyond the borders. So, in this study we are going to examine the volatility spill over of the equity market i.e., from the US market (S&P 500) to Indian market (NIFTY 50) there by understanding the cross-border financial transmission which is asymmetrical in nature and caused by unstable macroeconomic events. The aim of the study is to measure the spill over of volatility and to understand the effect of the 3 factors namely currency risk (USD/INR), global Fear (CBOE VIX) and 10year sovereign yield spread individually and combined. A sample of 348 weekly data were collected from secondary sources and analysed using R-programming and by using tools like GARCH (1,1) model, Vector Auto regression (VAR), Granger Causality, Threshold VAR, and Multivariate VARX model to Calculate volatility and to understand the relationship between the factors. The result Indicates that the spill over is asymmetrical when global markets are calm (VIX < = 20), only 9.23%. Indian market volatility is caused by us market but when panic break outs (VIX > 20), 38.6% Of Indian market Volatility is due to the US market. Other factors like currency risk and 10year yield Spread have an insignificant Impact individually, but when all 3 factors are combined, the market shock transmitted is significantly higher. Therefore, this study implies that during crises Indian equity market depends heavily on the Us Market.