Volatility in Indian Stock Markets
60 Pages Posted: 20 Mar 2011 Last revised: 12 Oct 2011
Date Written: March 16, 2011
Abstract
The ups and downs of the financial markets are always in the news. After all, there's plenty to report. Wide price fluctuations are a daily occurrence on India's stock markets as investors react to economic, business, and political events. Of late, the markets have been showing extremely erratic movements, which are in no way tandem with the information that is fed to the markets. Thus chaos prevails in the markets with investor optimism at unexpected levels. Irrational exuberance has substituted financial prudence. Here, efforts are being made to analyse the basic questions in the context of Indian stock markets by unearthing the rationale for the weird movements. It largely deals to examine the fundamentalist view put forward by economists who argue that volatility can be explained by Efficient Market Hypothesis. On the other hand, the view that volatility is caused by psychological factors can never simply be ignored. An empirical study of BSE Sensex and a set of representative stocks are carried out to find the changes in their volatility in the recent past. The stock market regulation in introduction of rolling settlement and dematerialization as a measure of reducing volatility is definitely a true step towards sustaining capital market efficiency. Thus, the present work will help the investors as well as market regulators to make the markets more efficient.
Keywords: Stock Market, Volatility, Market Efficiency
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