An Empirical Investigation of the Volatility Spill-over and Asymmetries between Nifty Index and Rupee- Dollar Exchange Rate

Journal of Business Thought, Vol 11, Apr 20- Mar 21, pp 41-50.

10 Pages Posted: 10 Feb 2021

See all articles by Rakesh Shahani

Rakesh Shahani

Dr. Bhim Rao Ambedkar College, University of Delhi

PRATEEK TOMAR

affiliation not provided to SSRN

Date Written: 2020

Abstract

The present study is an attempt to investigate the conditional volatility of returns of the two major segments of Indian financial markets viz. Re/$ Exchange Rate and Nifty Index Stock Index using GARCH (p,q) methodology. The period of the study has been taken to be April 2007-March 2017 and the data has been collected as monthly closing prices of the two variables, namely rupee dollar exchange rate and NSE Nifty. The analysis has been carried on first differenced (log transformed) prices. For studying the spill-over of volatility from a market to another, squared residuals (after standardization) from another market have been included as variance regressors. Further to find out whether or not there was any asymmetric returns of the markets under study, Threshold GARCH (T-GARCH) Model has been employed. The results of the study revealed the presence of conditional volatility of returns. The optimal model was identified as ARCH (1) when Re/$ Exchange Rate was the dependent variable while it was GARCH (1,1) when Nifty Index was taken as dependent variable. The bi-directional volatility spill-over (contemporaneous) was clearly evident by the two models and the same was captured by the variance regressors i.e. the standardized squared residuals. Further the results showed no sign of any asymmetry in volatility as reflected by the T-GARCH coefficients.

Keywords: Volatility Spill-Over, AR (1)-GARCH (P, Q), T-GARCH, Asymmetric Returns, B-P-G Heteroscedasticity Test

JEL Classification: G1

Suggested Citation

Shahani, Rakesh and TOMAR, PRATEEK, An Empirical Investigation of the Volatility Spill-over and Asymmetries between Nifty Index and Rupee- Dollar Exchange Rate (2020). Journal of Business Thought, Vol 11, Apr 20- Mar 21, pp 41-50., Available at SSRN: https://ssrn.com/abstract=3742155 or http://dx.doi.org/10.2139/ssrn.3742155

Rakesh Shahani (Contact Author)

Dr. Bhim Rao Ambedkar College, University of Delhi ( email )

Main Wazirabad Road
Opp Gokalpuri Metro Station
New Delhi, 110094
India

PRATEEK TOMAR

affiliation not provided to SSRN

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