How Much Does Volatility Influence Stock Market Returns? – Empirical Evidence from India

Malvika Saraf and Parthajit Kayal ()
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Malvika Saraf: Madras School of Economics
Parthajit Kayal: (Corresponding author), Madras School of Economics

Working Papers from Madras School of Economics,Chennai,India

Abstract: The purpose of this paper is to establish and estimate the extent of the volatility anomaly (VA), i.e., low volatility stocks achieve high average returns over time, in the Indian stock market We examine the impact of the beta, variance, relative beta, and relative variance measures on the expected stock returns for a cross-section of NIFTY500 companies, for the 10-year period July 2010 to June 2020. We comprehensively examine the data through robustness checks by undertaking the same procedure on a rolling year basis for different subsamples. We also consider the 6-month Covid pandemic phase from January to June 2020 to examine the role of risk and time on stock returns. Our empirical findings suggest that the VA is predominant in the medium to long term (5 to 10 years), but it seems to be negligible in the ultra-short and short time frames (6 months to 3 years). The overall findings suggest that the VA is most significant when the time period considered is 3 years or more. These results can prove to be highly useful for investors as well as portfolio managers.

Keywords: Volatility anomaly; investing; alpha; emerging markets; relative beta (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-02
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