Global Financial Crisis and Stock Return Volatility in India

The stock market volatility has drastically increased in recent days and economies are currently passing through a turbulent period, as reflected in all financial markets and asset classes. The global economic slowdown, the US real estate decline, the credit crisis and the recent reversal in the resources trend are all creating a great deal of turbulence and worry in the capital markets. Financial institutions and other companies around the world have been affected by volatility in the share and property markets. Thus, the US financial crisis reveals that stock price volatility can undermine financial as well as real sector stability. The study of volatility is, therefore, imperative in an emerging market nation like India. This paper examines the behaviour of time varying stock return volatility in India. Using S&P CNX Nifty based daily stock returns for a period from March 2006 to March 2009 in GARCH class models, the study concludes the persistence of stock return volatility and its asymmetric effect.