A Markov-Switching Model for Indian Stock Price and Volume

Kausik Chaudhuri and Alok Kumar

Journal of Emerging Market Finance, 2015, vol. 14, issue 3, 239-257

Abstract: Using weekly data from the Indian stock market, we examine the relationship between stock price and trading volume. Our framework is Markov Switching-Vector Error Correction Model (MS-VECM). We justify the use of nonlinear model using the Brock, Dechert and Scheinkman (BDS) test and the information criteria. The long-run dynamics are characterised by one cointegrating vector relating the price to trading volume. We find that stock price is weakly exogenous only in the high volatility regime. The MS-VECM with two regimes provides a good characterisation of the Indian stock market and performs well relative to the other linear and nonlinear models. JEL Classification: C32, G12, E32

Keywords: Markov-switching model; impulse response; India (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:14:y:2015:i:3:p:239-257

DOI: 10.1177/0972652715607116

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