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Sector Wise Analysis of Volatility Dynamics in NIFTY with Structural Break in Indices due to Recession
Abstract
The volatility clustering often seen in financial data has increased the interest of researchers in applying competing models to measure and forecast stock returns. This paper aims to model the volatility for daily returns of the NIFTY in three selected sectors with structural break in indices due to recession. By using simple GARCH, EGARCH and TARCH models, the study finds support that there are significant asymmetric shocks to volatility in the daily stock returns. The sector wise analysis of the volatility dynamics reveals that the IT sector is highly sensitive to good as well as bad news as compared to other sectors. For banking and IT sectors, in almost all periods the persistence values are less than 1 indicating that the mean reverting conditional volatility process exists in which the shocks are transitory in nature. The prevalence of non transitory shocks in the overall period is due to the non transitory shocks in the pre recession period particularly in the IT sector.
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