Volatility in Indian Stock Markets

Piyush Chowhan () and Vasant Shukla
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Vasant Shukla: Xavier Institute of Management, Bhubaneswar, India

Finance from University Library of Munich, Germany

Abstract: The ups and downs of the financial markets are always in the news. After all, there's plenty to report. Wide price fluctuations are a daily occurrence on the world's stock markets as investors react to economic, business, and political events. Of late, the markets have been showing extremely erratic movements, which are in no way tandem with the information that is fed to the markets. Thus chaos prevails in the markets with investor optimism at unexpected levels. Irrational exuberance has substituted financial prudence. Has the stock market volatility increased? Has the Indian market developed into a speculative bubble due to the emergence of "New Economy" stocks? Why is this volatility so pronounced? In this paper we try to analyse these questions in the context of Indian stock markets. We try to unearth the rationale for these weird movements. We examine the fundamentalist view put forward by economists who argue that volatility can be explained by Efficient Market Hypothesis. On the other hand, the view that volatility is caused by psychological factors is tested. An empirical study of BSE Sensex and a set of representative stocks are carried out to find the changes in their volatility in the last two years. The stock market regulation in introduction of rolling settlement and dematerialization as a measure of reducing volatility is put to test. Thus, the paper will help the investors as well as market regulators to make the markets more efficient.

Keywords: stock; market; volatility; bubble; effect; india; speculative; bubble; investor; pschycology; Dematerialization; rolling; settlement (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2000-09-25
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: Type of Document - Word97 .zip; prepared on HP Win95; to print on HP; pages: 16 ; figures: included. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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Citations: View citations in EconPapers (1)

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