Foresight for stock market volatility – a study in the Indian perspective

Abstract

Purpose Volatility is a permanent behavior of the stock market around the globe. The presence of the volatility in the stock price makes it possible to earn abnormal profits by risk seeking investors and creates hesitancy among risk averse investors as high volatility means high return with high risk. Investors always consider market volatility before making any investment decisions. Random fluctuations are termed as volatility of stock market. Volatility in financial markets is reflected because of uncertainty in the price and return, unexpected events and non-constant variance that can be measured through the generalized autoregressive conditional heteroscedasticity family models and that will give an insight for investment decision-making. Design/methodology/approach Daily data of the closing value of Bombay Stock Exchange (BSE) (Sensex) and National Stock Exchange (NSE) (Nifty) from April 1, 2011 to March 31, 2017 is collected through the web-portal of BSE (www.bseindia.com) and NSE (www.nseindia.com) for the analysis purpose. Findings The outcome of the study suggested that P-GARCH model is most suitable to predict and forecast the stock market volatility for both the markets. Research limitations/implications Future research can be extended to other stock market segments and sectoral indices to explore and forecast the volatility to establish a trade-off between risk and return. Originality/value The results of previous studies available are not conducive to this research, and very limited scholarly work is available in the Indian context, so required to be re-explored to identify the appropriate model to predict market volatility.