17 Pages Posted: 10 Jan 2011
Date Written: January 7, 2011
In order to study the volatility spillovers / the transfer of volatilities from spot and futures markets for the period 1st January 2001 to 30th November 2005 with high frequency data i.e., one minute intervals, we have used GARCH models to compute volatilities and VAR models for the returns of different markets and for the volatilities. It is evident that, these VAR models for the volatilities can exhibit the nature of the change in volatility.
In a heat wave, the conditional variance of the returns in spot (futures) market depends only upon the past shocks in the given market. For meteor showers, the impact of shocks on spot (futures) markets are transferred from other i.e., futures (spot) markets. With the VAR (1)-GARCH (1,1) analysis, we found that both series are I(1) and that a bi-directional relationship exists between the spot and future market return series. Empirically it is evident that both heat waves and meteor showers exist in Indian spot and futures markets.
Keywords: Spillovers, Heat Waves, Meteor Showers, Indian Stock Market
JEL Classification: C22, C32, C53, E47, G14, N25, O16, Y1
Suggested Citation: Suggested Citation
Varadi, Vijay Kumar and Boppana, Nagarjuna, Heat Waves or Meteor Showers: Empirical Evidence from Indian Stock Market (January 7, 2011). Available at SSRN: https://ssrn.com/abstract=1736586 or http://dx.doi.org/10.2139/ssrn.1736586
By V. Roley