Understanding the Volatility Characteristics and Transmission Effects in the Indian Stock Index and Index Futures Market

ICRA Bulletin, Money & Finance, September 2007

24 Pages Posted: 10 Sep 2009

Date Written: September 9, 2007

Abstract

The present paper examines the characteristics of return volatilities in the equity market and the index futures market in India. Volatility in the NSE Nifty index and that in its futures market are both seen to exhibit features of mean reversion, volatility clustering and a fair degree of volatility persistence, estimates of which give an idea of the impact and duration of a particular information shock to the market. The returns volatility is found to exhibit significant asymmetric response in times of market retreats and advances, with volatility arising in times of market decline being much sharper and more persistent. The study also provides evidence of volatility linkages between the spot and futures markets. Contemporaneous transmission effects across volatilities of the Indian (NSE) Stock and Index futures markets are tested on daily data, using an asymmetric (threshold) GARCH framework. These results have implications for understanding the pattern of information flows between the two markets. The results indicate that the futures market plays a leading role in assimilating information and thus moderating, though to a small extent, the spot market volatility.

Keywords: Indian stock market volatility, index futures, volatility transmission, asymmetric GARCH

JEL Classification: C32, G14, G18

Suggested Citation

Bose, Suchismita, Understanding the Volatility Characteristics and Transmission Effects in the Indian Stock Index and Index Futures Market (September 9, 2007). ICRA Bulletin, Money & Finance, September 2007 , Available at SSRN: https://ssrn.com/abstract=1470629

Suchismita Bose (Contact Author)

ICRA Ltd ( email )

5th Floor, Karumuttu Centre
498 Anna Salai
Chennai, 600 035
India
+91 44 2434 0043 (Phone)
+91 44 2434 3663 (Fax)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
484
Abstract Views
3,125
rank
69,882
PlumX Metrics