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Tail Behaviour of the Nifty-50 Stocks during Crises Periods

Srilakshminarayana G
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Srilakshminarayana G: Department of Quantitative Methods, Shri Dharmasthala Manjunatheshwara Institute for Management Development, India

Advances in Decision Sciences, 2021, vol. 25, issue 4, 115-151

Abstract: This paper examines the behaviour of the NIFTY 50 stocks during the crisis periods by estimating the tail index for each of the stocks.The time horizon between 2007 to 2020 was considered and was divided into six periods, at the time points where a crisis had occurred. During each period the behaviour of the stocks was observed and the tail index was estimated using the weighted least squares (WLS) estimator, proposed by Nair (2019).The study finds that the crisis events have changed the tail behaviour of a few stocks, and did not impact the behaviour of other stocks. Also, that these stocks could sustain the change caused by the crisis events during a few periods and could not during other periods. The study finds the periods that are severe and not severe using the tail index values. Towards the end, a classification table that divides the stocks into high risk, moderate risk and low risk, was presented based on the findings.We suggest the practitioners and researchers estimate the tail index of the stocks before taking any decision on its probability structure or decisions related to investments etc. This process can be adopted along with other processes. It helps in identifying the stocks that are riskier for investment. Also, identify the periods that are sensitive to the crisis events. The study also recommends estimating the tail index and then deciding upon any other methodology for analyzing the data.

Keywords: COVID-19; Extreme events; Crisis events; Classification; Nifty 50; Tail behaviour (search for similar items in EconPapers)
JEL-codes: C0 G0 (search for similar items in EconPapers)
Date: 2021
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Handle: RePEc:aag:wpaper:v:25:y:2021:i:4:p:115-151