INTERNATIONAL JOURNAL OF BUSINESS, 12(3), 2007 ISSN: 1083−4346 Volatility Spillover between Stock and Foreign Exchange Markets: Indian Evidence Alok Kumar Mishra a , Niranjan Swain b , and D.K. Malhotra c a Evalueserve.Com Pvt. Ltd., 2 nd Floor, Unitech World- Cyber Park, Jharsa, Sector-39, Gurgaon-122002 India mishra78eco@yahoo.com b Birla Institute of Technology & Science (BITS), Pilani, India niranjanswain@yahoo.com c School of Business Administration, Philadelphia University, School House Lane and Henry Avenue, Philadelphia, PA 19144-5497, USA malhotrad@philau.edu ABSTRACT The study of volatility spillovers provides useful insights into how information is transmitted from stock market to foreign exchange market and vice versa. This paper explores volatility spillovers between the Indian stock and foreign exchange markets. The results indicate that there exists a bidirectional volatility spillover between the Indian stock market and the foreign exchange market with the exception of S&P CNX NIFTY and S&P CNX 500. The findings of the study also suggest that both the markets move in tandem with each other and there is a long run relationship between these two markets. The results of significant bidirectional volatility spillover suggest that there is an information flow (transmission) between these two markets and both these markets are integrated with each other. Accordingly, financial managers can obtain more insights in the management of their international portfolio affected by these two variables. This should be particularly important to domestic as well as international investors for hedging and diversifying their portfolio. JEL Classification: G15, C32 Keywords: Stock market; Foreign exchange market; Volatility spillovers; Information transmission; ARCH; GARCH; EGARCH