A Study of the Asymmetric Behaviour and Spillover Effect Case of Indian Stock Market Volatility

Abstract

Volatility in stock market is universal. Risk seekers can earn abnormal profits and risk newlineaverse investors can avoid their risk through proper analysis of volatility. The price, newlinereturn and different events are uncertain but this uncertainty can provide insight for newlinemaking investment decisions, if volatility is measured through an appropriate model. In newlinethis research work, efforts are made to examine and compare the symmetric and newlineasymmetric volatility in two major stock markets of India through the application of newlineeconometric models i.e. GARCH, TGARCH and EGARCH. Daily data of the closing newlinevalue of NSE (Nifty-50) and BSE (Sensex) from 1st April 2010 to 31st March 2022 is used newlinefor the examination purpose. The results show that volatility in Indian market is persisted newlinefor a long time and highly impacted by past volatility than current market situation. The newlineasymmetric behaviour of volatility is also observed in Indian market. The coefficients of newlineGARCH models are same for both market indicating strong integration between NSE and newlineBSE. newlineAlong with modeling volatility, the interconnection between commodity market, currency newlineand stock market is the topic of continuous debate. This study helps in this direction by newlineproviding critical analysis of impact of Exchange rate, Gold price and Crude oil prices on newlinestock market volatility in India. The daily spot prices are considered from April, 2010 to newlineMarch 2022 to apply NARDL approach given by Shin et al., 2014. The volatility in newlineIndian stock market is unaffected by these variables in long run except gold price. While newlinein short run, both positive and negative changes in crude oil brought negative changes in newlinevolatility, exchange rate brought positive changes in volatility but gold prices displayed newlineasymmetric impact on volatility existed in stock market. The findings are important for newlinevarious participants of currency, commodity markets as well as stock markets. newline