Exploring Multivariate GARCH DCC Model: Investigation into Spillover Effects among Global Financial Markets

Abstract

This article examines the impacts of Eurozone crisis, COVID-19 and Russia- Ukraine war on stock market integration and risk contagion for five largest stock markets of developed countries (Hong Kong, USA, UK, Japan, and Canada) in the post financial crisis period. Weekly data from 2010 to 2023 has been tested by employing multivariate GARCH DCC model. We find existence of significant comovement between market returns of five countries during the sample period with a significant contagion effect between all during the Eurozone crisis. However, during the COVID period, existence of risk contagion has been established amongst USA, UK, Japan and Canada. Furthermore, our findings reveal the presence of ‘flight to quality effects’ among all five stock markets during Russia- Ukraine war and also when Hong-Kong stock market is paired with rest four during the COVID period. The results highlight the importance of policy coordination amongst the world’s major developed economies.