Modelling Asymmetric Volatility and Leverage Effect of Nifty PSE (Public Sector Enterprises) Index Stocks

Abstract

This research paper is organized to estimate the volatility and measure the effect of good and bad news on the volatility of the Nifty PSE index stocks. In order to achieve this objective the daily closing price of all the stocks listed in Nifty PSE index was considered. The data is collected for a period of 9 years i.e., from 1^st January 2011 to 31^st December 2019. Augmented Dicky Filler and Phillips-Perron test are used to check the stationarity of the return series. The standard GARCH models were applied to study the volatility behavior during the study period and two commonly used asymmetric volatility models i.e. EGARCH and TGARCH were employed to analyze the leverage effect. The study reveals the presence of volatility clustering and persistence. It was found that the stocks selected for the study react to the bad news and good news asymmetrically. The research concludes that the negative shocks delivers more volatility for majority of the PSE index stocks than the positive shocks of the same magnitude.

Keywords: Asymmetry, Clustering, Leverage effect.

DOI: 10.7176/RJFA/12-5-02

Publication date:March 31^st 2021