Modeling of Seasonal Volatility - Empirical Analysis of Impact of Increased Market Timings

17 Pages Posted: 22 Oct 2011

Date Written: July 17, 2011

Abstract

Efficiency of the equity market is one of the areas of prime concern for the stock market regulators because of its bearing on the investment behavior of investors. Also, with the increase in the level of integration with global stock markets, information originating in different countries has an impact on the Indian markets. This calls for the operating standards of the domestic market to be at par with other developed global stock markets. Extending the trading hours is one of the latest actions initiated by SEBI in order to increase the efficiency and volume of the market, reducing the volatility in returns and thereby providing enough time to investors for implementing investment strategies. It would also align the domestic market with the Asian and European markets. This study is an effort to empirically investigate the pattern of volatility in the Indian Stock Markets in terms of its time varying nature and presence of certain characteristics such as day of the week effect and calendar month effect. Furthermore, the data has been analyzed to ascertain any structural change in the seasonal volatility of the returns provided by the Indian bourses after the extension of trading hours. Across the various trading days of the week, Monday was found to have the maximum volatility. Post the increase in trading hours, the volatility has reduced across all the days, and that, Wednesday is seen to be having the highest volatility in the daily returns. Also May was found to be the most volatile month of the year. In contrast, an analysis of the month of the year effect post the change in market timings leads us to the conclusion that the volatility has increased for the month of November while across the other months, the same has reduced.

Keywords: Volatility, market timings, day-of-the-week effect, calendar-year effect

JEL Classification: G17, G32, C22

Suggested Citation

Agarwal, Khagesh and Ahuja, Pulkit, Modeling of Seasonal Volatility - Empirical Analysis of Impact of Increased Market Timings (July 17, 2011). Available at SSRN: https://ssrn.com/abstract=1893028 or http://dx.doi.org/10.2139/ssrn.1893028

Khagesh Agarwal (Contact Author)

DE Shaw & Co. ( email )

Sanali Infopark Building
Road No: 2, Banjara Hills
Hyderabad, India, IN Andhra Pradesh 500045
India

Pulkit Ahuja

LBSIM ( email )

Sector-III, R.K. Puram
New Delhi, Delhi 110022
India

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
132
Abstract Views
906
Rank
390,441
PlumX Metrics