Sectoral Analysis of Bombay Stock Exchange – Application of Garch Models
Keywords:
Volatility Clustering, Leverage effect, GARCH, ARCH, BSE, SensexAbstract
The present work used GARCH (1,1), TGARCH (1,1) and EGARCH (1,1) models for studying the volatility persistence and volatility clustering behaviour and leverage effect for the daily returns of the five sectoral indices of BSE Sensex mainly FMCG, I&T, Auto, Healthcare, Oil & Gas along with BSE Sensex. The results revealed that the news about the volatility in the previous period and lagged conditional variance impact significantly the volatility of the daily return series (of the five sectoral indices and BSE Sensex) in the current period. The leverage effect showed that bad news impact significantly the current volatility than the good news of the same magnitude. Oil & Gas and I &T sectors have shown more volatility persistence behaviour and slower decay of volatility compared to the Auto, FMCG and Healthcare. It is suggested that the government and regulatory bodies of stock markets need to take necessary steps to avoid the high volatility behaviour of the stock indices of Bombay Stock Exchange in order to protect the interest of the foreign and domestic investors.
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