Stock Market Volatility in India

Contents: Foreword. Preface. I. Introduction to Indian stock market: 1. Overview. 2. The Indian economy--current reforms. 3. Major stock exchanges. 4. Stock price indices. II. Stock market volatility: conceptual framework: 1. Risk and return. 2. The concept of volatility. 3. Explanations for volatility. 4. Issues concerning volatility and its measurement. 5. Importance of volatility. 6. Outline of the study. III. Studies on stock market volatility: 1. Overview. 2. Studies concerning the extent of volatility and its relationship with various factors. 3. Studies on volatility and market regulation. 4. Studies concerning the econometric modelling of time series behaviour of volatility. 5. Conclusion. IV. Extent and pattern of stock return volatility: 1. Method of investigation and analysis. 2. Empirical results. 3. Conclusions. V. Influence of certain factors on stock return volatility: 1. Volatility and company size. 2. Day of the week effect. 3. Effect of foreign institutional investors’ investments on stock market volatility. VI. Stock market volatility and capital adequacy and margining levels: 1. Introduction. 2. Overview of some regulatory mechanisms. 3. Volatility and margins: the theoretical background. 4. Measuring volatility: trader’s versus investor’s viewpoints. 5. Method of analysis. 6. Analyses and results. 7. Conclusions. VII. Modelling stock market volatility: 1. Introduction. 2. Applications of volatility forecasting. 3. Forecasting volatility. 4. Conclusions and implications. VIII. Policy implications for investors and regulators: 1. Main empirical findings. 2. Main conclusions of the study. 3. Implications of the study. 4. Suggestions for further work. Appendices. Select bibliography. Index.

"Volatility in equity markets has become a matter of great concern in recent years for investor, regulators and brokers. It is perceived as an indicator of market inefficiency and a potential threat to the very integrity of the market mechanism. However, few studies that have been done on the Indian stock market have left many vital issues concerning volatility untouched.

This book in its attempt to fill this void empirically investigates the extent and pattern of volatility of individual stocks and the two major stock market indices viz. BSE Sensex and NSE Fifty (Nifty) and throws light on a number of vital issues concerning volatility such as dependence of volatility level upon firm’s size, day-of-the-week, FII investments and the margining levels, etc.

The study is divided into eight chapters including Chapter 1, which is introductory. Chapter 2 presents the concept of volatility in terms of definition of volatility and its relationship with information. The excessive or hyper volatility is distinguished from normal volatility. The factors affecting short-term and long-term volatility are discussed along with some measurement problems of volatility.

Chapter 3 presents a comprehensive survey of the existing literature on the subject.

Chapter 4 is devoted to accomplishing the vital objective of determining the extent of volatility prevalent in the Indian stock market. The volatility levels of the two most important market indices--BSE Sensex and NSE Nifty--and 142 individual stocks are presented. "Spike" volatility is discussed in contrast to the normal volatility and the volatility of the Indian stock market is compared with that of some of the other stock markets of the world.

Chapter 5 examines the effect of certain factors such as size of a company, day-of-the-week and foreign institutional investors’ investments on the stock return and volatility. Each factor is analyzed separately and the extent of its impact on return and volatility is tested for statistical significance.

Chapter 6 correlates the extent of volatility prevalent in the Indian stock market as revealed in this study with the sufficiency of the capital adequacy requirement and margining levels.

In Chapter 7, a stock return volatility forecast model is presented for BSE Sensex, based on the Generalized Autoregressive Conditional Heteroskedasticity (GARCH) specification.

Finally, implications of the investigations for the investors, regulators and policy makers are presented in Chapter 8. Besides these eight chapters, some informatory appendices and select bibliography of relevant literature are also included." (jacket)