Modeling Stock Market Volatility in Emerging Markets: Evidence from India

Sinha, Bhaskar (2007): Modeling Stock Market Volatility in Emerging Markets: Evidence from India.

Abstract

This study models the volatility present in the inter day returns in the stock of the two major national indices of India. Sensitive Index or Sensex related to Bombay Stock Exchange (BSE) and Nifty associated with National Stock Exchange (NSE). The objective is to model the phenomena of volatility clustering and persistence of shock using asymmetric GARCH family of models. Research showed that EGARCH model successfully models the Sensex (BSE) data whereas it is GJR-GARCH which was able to explain conditional variance in the returns from Nifty (NSE).

• Item Type: MPRA Paper
• Language: English
• Keywords: GARCH, Volatility,Index
• Subjects: N - Economic History > N2 - Financial Markets and Institutions; N - Economic History > N2 - Financial Markets and Institutions > N25 - Asia including Middle East

References

•Andersen T G and T Bollerslev. 1997. Heterogeneous Information Arrivals and Return Volatility Dynamics: Uncovering the Long-Run in High Frequency Returns. Journal of Finance. 52(1): 975-1005.

•Andersen T G and T Bollerslev. 1998. Answering the Skeptics: Yes, Standard Volatility Models Do Provide Accurate Forecasts. International Economic Review. 39(4): 885-905.

•Black F. 1976. Studies of Stock Price Volatility Changes. Proceedings of the 1976 Meetings of the American Statistical Association, Washington D.C., 177-181

•Bollerslev T. 1986. Generalized Autoregressive Conditional Heteroscedasticity Journal of Econometrics. 31(3): 307-327.

•Bollerslev T. 1987. A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return Review of Economics and Statistics 69(4): 542-547.

•Bollerslev T, R F Engle and D B Nelson. 1994. ARCH Models in R.F. Engle and D. McFadden (eds.), Handbook of Econometrics, Volume IV, 2959-3038. Amsterdam: North-Holland.

•Conrad K and D Juttner. 1973. Recent Behavior of Stock Market prices in Germany and the Random Walk Hypothesis. Kyklos. 26(5):576-599

•Dryden M. 1970. A Statistical Study of UK Share Prices. Scottish Journal of Political Economy. 56(2) :369-389

•Engle R F. 1982. Autoregressive Conditional Heteroskedasticity with Estimates of the variance of United Kingdom Inflation. Econometrica. 50(4) : 987-1007

•Engle R F and K Kroner. 1995. Multivariate Simultaneous Generalized ARCH Econometric Theory. 11(1):122-150.

•Engle R F, V Ng and M Rothschild. 1990. Asset Pricing with a Factor ARCH Covariance Structure: Empirical Estimates for Treasury Bills. Journal of Econometrics. 45 (2): 213-238.

•Fama E. 1965. The Behavior of Stock Prices. Journal of business. 38(1): 34-105.

18

•Fama E. 1970. Efficient Capital Markets: A Review of Theory and Empirical

Work. Journal of Finance. 45 (2) : 383-417

•Goyal R. 1995. Volatility in Stock Market Returns. Reserve Bank of India Occasional papers . 16(3) : 175-195

•Garman M B and M J Klass. 1980. On Estimation of Security Price Volatilities from Historical Data. Journal of Business. 53(1): 67-78.

•Glosten L, R Jagannathan and D Runkle. 1993. On the Relation Between the Expected Value and Volatility of the Nominal Excess Return on Stocks. Journal of Finance. 48(5): 1779-1801.

•Jennergreen L, and P Korsvold. 1975 The Non-random Character of Norwegian and Swedish Stock Market Prices. International Capital Markets. 67(1) :37-54

•Ljung, G and G. Box, “On a Measure of Lack of Fit in Time Series Models,” Biometrika, Vol 66, 1978, pp 67-72.

•Lawrence M. 1986. Weak Form Efficiency in the Kuala Lumpur and Singapore Stock Markets. Journal of Banking and Finance. 10 (19): 431-445

•Lamoureux C G and W D Lastrapes. 1990. Persistence in Variance ,Structural Change and the GARCH Model. Journal of Economic Business Statistics. 8(2): 225-233.

•Nelson D B. 1991. Conditional Heteroskedasticity in asset returns: A new

Approach. Economertica. 59 (2) : 347-395

•Pattanaik S and B Chatterjee. 2000. Stock Returns and Volatility in India: An Empirical Puzzle. Reserve Bank of India Occasional Papers. 21(1), Summer, 37-60

•Roy M K and M Karmakar. 1995. Stock Market Volatility: Roots & Results.Vikalpa. 20(1): 37-48

•Schwert W G. 1989. Why Does Stock Market Volatility Changes Over Time? Journal of Finance. 44(5): 1115-1151