DO CONTAGION AND VOLATILITY SPILLOVERS AFFECT GLOBAL ASSET CLASSES AND ASIAN STOCK MARKETS?

Abstract

Volatility spillovers and Contagions effects has risen due to the changing world dynamics due to recent turmoil’s and war.  As Asian markets are interdepend on Gulf Countries and Oil prices have globally risen due to the Iran, Israel and USA controversy over Strait of Hurmuz. It has   risen the global financial uncertainty that has amplified volatility across asset classes and equity markets in Pakistan, India and China. For this purpose this study investigated the contagion and volatility spillovers. The data has been taken from stock markets of KSE-100, BSE SENSEX, SCI and global asset classes including Crude oil, Gold, Bitcoin and PKR/USD exchange rate, by using daily data from January 1, 2024 to July 31, 2026. Unit root tests, GARCH and the Dynamic Conditional Correlation GARCH (DCC-GARCH) model to identify the time-varying volatility behavior. Results reveal strong volatility persistence in KSE-100, with significant clustering effects, while BSE SENSEX demonstrates a better model fit despite statistically weaker volatility responses. The SCI reflects relatively stable volatility patterns with insignificant short-run effects. Among global assets, Bitcoin shows the highest volatility but limited contagion, whereas gold retains its traditional role as a safe haven. Crude oil and exchange rate fluctuations act as major volatility transmitters to Asian stock markets. The DCC-GARCH model confirms that conditional correlations between markets intensify during periods of global uncertainty, such as the WAR- between Iran and Israel, reducing the effectiveness of portfolio diversification. These findings highlight the investor’s behavior abruptly and tremendously affected by financial contagion, risk transmission, spillovers and strategic investment planning in emerging Asian economies in forthcoming future.