Investors' Perception on Factors Causing Volatility at Indian Stock Market

Abstract

Study of volatility in the equity market is a crucial issue in economics and finance. Volatility change in the stock prices has many adverse effects on an economy and also investment. It has received great attention from both academicians and practitioners over the last two decades because it can be used as a measure of risk exposure in investments. This study examines the perception of investors to identify factors affecting volatility in Indian stock market. It employs a questionnaire survey of equity investors at BSE using a sample of 226 individual and institutional investors. The data collected is analyzed with factor analysis and multiple regression models. The study reveals that Indian stock market is perceived to exhibit high degree of volatility. It finds that external factors like macroeconomic situation, political condition and spillover effect from global markets have the highest influence in affecting volatility of the Indian stock market followed by the stock market factors like noise trading, market manipulation, foreign portfolio investment and derivative trading. Company factors like financial performance and other company specific information have been found to have the relatively lower effect on perceived riskiness of the stock market.

Keywords: Stock Market Volatility, Investor Perception, Macroeconomic Factors, Risk Management

JEL Classification: G11, G24, G53