Assessing volatility in returns : An Indian stock market perspective

Abstract

Volatility is the rate at which share price in stock market vary. It is a statistical valuation of the dispersion of returns of share prices or market index. Share prices are highly volatile which makes the investment in shares a risky venture. This study portrays the association between stock returns and volatility in Indian stock market. The nature of volatility is assessed by the use of symmetric and asymmetric GARCH class of models. The data used for the study were daily closing Nifty values for twelve years. The models arrest the volatility clustering and leverage effect during the aforesaid period. GARCH (1,1), EGARCH (1,1) and TGARCH (1,1) models are being used in shaping the study. Results of asymmetric GARCH models disclose an existence of leverage effect in share market and validate the effect of conditional volatility as well. The findings reflect that the coefficient has a likely indication in the EGARCH model as well as in the TGARCH models. Further, EGARCH (1,1) model is proved to be the finest model to arrest the asymmetric volatility.