Is Indian Stock Market More Volatile in Reform Period? Evidence from E-GARCH Model
India opened up its stock market in the early 1990s allowing the Foreign Institutional Investors (FIIs) to invest in the Indian Stock Markets. It is widely believed that FIIs are the most volatile investors in the Indian stock market. It is also noticed that generally stock market volatility tends to increase following financial liberalization. This paper tests this hypothesis in the Indian context, by applying daily as well as monthly returns series of BSE Sensex and IFCG global index. By applying E-GARCH model, it was found that volatility has increased marginally in the postreform period. Structural break test was also conducted by applying Bai and Perron's endogenous break methodology. It is clear that stock market reforms as such do not lead to change in volatility persistence. Rather it is related to wide economic policy changes or regime shift. At the same time, FIIs' activities are also not related to the structural break points. When large shocks in stock returns were controlled for, significant reduction in Autoregressive Conditional Heteroscedasticity (ARCH) effect was noticed; however, volatility was still persistent.
Year of publication: |
2008
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Authors: | Dash, Ranjan Kumar ; Singh, Sumanjeet |
Published in: |
The IUP Journal of Applied Economics. - IUP Publications. - Vol. VII.2008, 1, p. 61-79
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Publisher: |
IUP Publications |
Saved in:
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