Volatility Clustering in Aggregate Stock Market Returns: Evidence from Indian Stock Market
Prajnan, Vol. 36, No. 4, pp. 307-323, 2007-2008
18 Pages Posted: 9 Nov 2010 Last revised: 16 Jan 2015
Date Written: 2007
This study is an attempt to model the volatility of stock returns in Indian market for the period 1997-2006 using GARCH, TARCH and E-GARCH. Results point out that returns exhibit persistence and volatility clustering in both NSE Nifty and BSE Sensex. Asymmetric volatility effect has been observed in both the series using TARCH and E-GARCH model. While forecasting returns it is found that GARCH-M performs better compared to alternative econometric models, namely, RW, OLS, GARCH, GARCH-M, TARCH and E-GARCH models. It is revealed that one-step ahead forecast improves by using GARCH and its variant models, which goes against the concept of random walk hypothesis. Results of this study also indicate that certain anomalies still exist which makes the stock market inefficient. In this context, SEBI is expected to play proactive role in a manner, which makes market capable to value the intrinsic price of assets.
Keywords: Volatility Clustering, Leverage Effect, GARCH, TARCH, E-GARCH
JEL Classification: C51, G12, G15
Suggested Citation: Suggested Citation