Volatility Clustering and Model Development for NSE Index Future and Spot Index through ARCH/GARCH Models

Arya Kumar, Dr. Saroj Kanta Biswal and Dr. Prafulla Kumar Swain

Any firm’s financial decision is mostly dependent on various factors that affect the demand and supply of finance. In the financial market, maintaining the pricing, portfolio, and risk management is the most important feature. This can only be possible through understanding the characters of volatility modeling. Several researchers already proved the introduction of the financial derivative in the financial market helped many in pricing, portfolio and risk management. In India financial derivative is a recent origin, result to which many are ignorant about the benefits of it and unable to take a decision in pricing and risk hedging. Due to such a situation, the derivative market is highly volatile. Therefore, the study will satisfy the objective of examining the Indian Derivative market’s volatility characteristics. This analysis will highlight the leverage effect, Platykurtic and volatility clustering. These objectives can be examined through symmetric and asymmetric models. For analysis, the tools used are ARCH, GARCH, and EGARCH that will provide a clear picture of the behavior of Indian Derivative market and spot market i.e. Nifty 50 future and its indices like Bank Nifty future, IT Nifty future, and Infra Nifty future. Similarly in case of Spot market it is the Nifty 50 spot, Bank Nifty Spot, IT Nifty Spot, and Infra Nifty Spot. For such examination, the data considered is the return of indices from January 1st, 2007 to June 30th, 2018. The result shows that the (symmetric model) ARCH/ GARCH models are possible to predict the characteristics and support leptokurtosis and volatility clustering, while the EGARCH result shows no effect of leverage on index futures.

Volume 11 | 10-Special Issue

Pages: 221-227

DOI: 10.5373/JARDCS/V11SP10/20192794