Volatility Study of NSE NIFTY During Its Pre and Post Derivative Period

Abstract

This paper investigates the volatility dynamics of stock market by using daily data of the NIFTY index of NSE during its pre and post derivative period from Jan 2000 to Dec 2014. The volatility in the Indian stock market exhibits characteristics similar to those found earlier in many of the major developed and emerging stock markets. It is shown that ARCH family models outperform the conventional OLS models. We find that, the TARCH model is better fit, when we compare the GARCH, EGARCH and TARCH models, on the basis of AIC and SC criteria. Moreover, in the GARCH model, ARCH and GARCH effects remain significant, which highlights the inefficiency in the market. In addition, EGARCH and TARCH models indicate the presence of leverage effect and positive impact of volatility on returns for pre-derivative, post-derivative and whole period of the NIFTY index under study.

Keywords: NIFTY, GARCH, EGARCH, TARCH, Causality Test

JEL Classification: C32, G14