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

See all articles by Shahid Ahmed

Shahid Ahmed

Jamia Millia Islamia (A Central University) - Economics

Date Written: 2007

Abstract

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

Ahmed, Shahid, Volatility Clustering in Aggregate Stock Market Returns: Evidence from Indian Stock Market (2007). Prajnan, Vol. 36, No. 4, pp. 307-323, 2007-2008. Available at SSRN: https://ssrn.com/abstract=1705527

Shahid Ahmed (Contact Author)

Jamia Millia Islamia (A Central University) - Economics ( email )

Jamia Nagar
New Delhi, 110025
India

HOME PAGE: http://jmi.ac.in/economics/faculty-members/Prof_Shahid_Ahmed-1783

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