Modeling Indian Bank Nifty volatility using univariate GARCH models

M N, Nikhil and Chakraborty, Suman and B M, Lithin and Ledwani, Sanket (2022): Modeling Indian Bank Nifty volatility using univariate GARCH models. Published in: Banks and Bank Systems , Vol. 18, No. 1 (17 March 2023): pp. 127-138.

Abstract

The crumble of financial markets due to the recent crises has wobbled precariousness in the stock market and intensified the returns vulnerability of banking indices. Against this backdrop, this study intends to model the volatility of the Indian Bank Nifty returns using a battery of GARCH specifications. The finding of the present research contributes to the literature in three ways. First, volatility during the sample period, which corresponds to a time of stress (a bear market), is more persistent, with an estimated coefficient of 0.995695. Moreover, when volatility rises, it persists for a long time before returning to the mean in an average of 16 days. Second, for a positive γ, the results insinuate the possibility of an “anti-leverage effect” with a coefficient of 0.139638. Thus, the volatility of the Bank Nifty returns tends to rise in response to positive shocks relative to negative shocks of equal magnitude in India. Finally, the findings demonstrate that EGARCH with Student’s t-distribution offers lower forecast errors in modeling conditional volatility.

• Item Type: MPRA Paper
• Language: English
• Keywords: anti-leverage, asymmetry, bank nifty, GARCH, index returns, Indian stock, leverage, return volatility
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; G - Financial Economics > G1 - General Financial Markets > G10 - General; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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