Nonlinear Dependence in Stock Returns

G. S. Hiremath ()
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G. S. Hiremath: Department of Humanities and Social Science, IIT Kharagpur

Chapter Chapter 3 in Indian Stock Market, 2014, pp 41-57 from Springer

Abstract: Abstract A body of literature focused on testing for linear dependence in stock returns. The rejection of linear dependence does not necessarily imply independence because of the possibility of a nonlinear structure in the time series realizations. This chapter empirically investigates nonlinear dependence in Indian stock returns using a set of nonlinearity tests. The daily data between 1997 and 2010 of eight indices from the National Stock Exchange (NSE) and six indices from the Bombay Stock Exchange (BSE) are used. The results suggest strong evidence of nonlinear structure in stock returns. The nonlinear dependence, however, is not consistent throughout the sample period but confined to a few brief periods. The periods of nonlinear dependence are majorly associated with events such as uncertainties in international oil prices, volatile exchange markets, solvency issues of cooperatives, US 64 scam, subprime crisis followed by the global economic meltdown, and political uncertainties among others.

Keywords: Nonlinear dependence; Informational efficiency; Pure noise; Episodic dependence; Oil shocks; Subprime crisis; Subprime crisis; FIIs (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spbchp:978-81-322-1590-5_3

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DOI: 10.1007/978-81-322-1590-5_3

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