Title: Assessment of return and volatility spillover across sectors' indices: evidence from Pakistan stock exchange

Authors: Hafiza Muntaha Khalid; Sadia Farooq; Faiza Liaqat; Muhammad Naeem

Addresses: Hailey College of Commerce, University of the Punjab, Quaid-i-Azam Campus, Lahore, 54590, Punjab, Pakistan ORCID: 0000-0003-2740-3953 ' Hailey College of Commerce, University of the Punjab, Quaid-i-Azam Campus, Lahore, 54590, Punjab, Pakistan ORCID: 0000-0002-9555-0800 ' Hailey College of Commerce, University of the Punjab, Quaid-i-Azam Campus, Lahore, 54590, Punjab, Pakistan ' UCP Business School, University of Central Punjab, Lahore, 54000, Punjab, Pakistan

Abstract: This paper examines the dynamics of return and volatility transmission between several sectors of Pakistan Stock Exchange (PSX). We employed GARCH(1,1) model and our results demonstrate that the most influential sector regarding the return spillover is power generation and distribution sector, and regarding volatility spillover, highly influential sector is automobile sector indicating that these sectors are the main drivers of spillover effect. Whereas, the most suggested sectors for investment are Automobile Assembler and Power generation and distribution sectors, as these are least influenced by other sectors' spillover. The investors and portfolio managers can use such findings as a guideline in making a healthy portfolio resulting in reduced risk to their investment. The well-informed decisions of the investors can, in turn, facilitate the growth of economy.

Keywords: return; volatility spillover; PSX; Pakistan Stock Exchange; GARCH(1;1); sectors' indices; portfolio diversification; investment.

DOI: 10.1504/IJMEF.2021.118281

International Journal of Monetary Economics and Finance, 2021 Vol.14 No.5, pp.477 - 496

Received: 28 Dec 2020
Accepted: 15 Mar 2021
Published online: 18 Oct 2021 *

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