Lahore School of Economics

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A Study on Volatility Dynamics and Inter-Sectoral Spillovers Originating from Banking Sector: The Case of Karachi Stock Exchange

Mehrukh Salman Lahore School of Economics
Dr Kumail Rizvi, CFA, FRM, Lahore School of Economics

The study was conducted to investigate the spillover effects originating from the Banking sector and directionality of these effects on various sectors of Pakistan. The sectors under study were Banks, Oil and Gas, Construction, Chemical, Food Producer, Fixed Line Telecommunication, Electricity sector and Personal Goods sector. Daily data of 251 companies was considered and the time period studied was from 2008 to 2011. We investigated the spillover effects originating from Banking sector and whether they differ across different sector but also examined whether correlation of Banking sector with other sector varies over time. We used BEKK parameterization as used by (Engle & Kroner, 1995) to detect volatiltity transmission among Banking and all other sectors. We also conducted Granger Causality test on weekly portfolio returns, volatility and conditional standard deviation to have a better understanding. The results of daily data showed returns of banking sector significantly impacted returns in Oil and Gas sector, Chemical and Electricity Sector Returns in Construction and Chemical sector impacted return in banking sector. We tested Granger Causality, on weekly portfolio returns, volatility and conditional standard deviation and then ran the GARCH model on weekly and monthly data set. We concluded that banking sector did play a crucial role in impacting various sectors of the economy but it was also evident from the results that few sectors did impact the Banking sector too.

Ms Mehrukh Salman is Senior Teaching Fellow at the Lahore School and a PhD candidate. She is a gold medalist in MPhil and on Dean’s Honor list in BBA, MBA and MPhil. She has a B.B.A (Hons.), MBA and MPhil from Lahore School of Economics. She have been teaching various business courses to under graduate students since 2009 and it is due to her profound association and work in research she is involved in assisting numerous student each academic term in their final thesis.

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posted by S A J Shirazi @ 5/30/2014 11:10:00 AM,

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