Analyzing the volatility of NSE returns and model selection: A GARCH-TARCH-EGARCH approach

Abstract

The Volatility of stock returns becomes vital to analyze considering the fluctuations occurring in Indian stock market. As market discounts everything, any event, incident or activity happening in Indian Economy gets reflected through these fluctuations. The present study attempts to analyze this volatility by selecting the appropriate model amongst GARCH, TARCH and EGARCH. The study also checked for the normality, Autocorrelation and Heteroscedasticity for the select data. For the purpose of the study daily returns are considered of Nifty 50 and returns of five randomly selected banks listed on Nifty 50. The present study also shows if there exists any significant impact of these bank stock returns on the Nifty 50 returns. All these stock returns are converted into log form for normality purpose. The period of the study is restricted to five years i.e. 2011-2015. The results evidenced that the returns are homoscedastic and does not contain any autocorrelation. Also there exists a significant impact of returns of banks on the Nifty 50 returns. The study also proved that to analyze the volatility of Nifty 50 returns, TARCH model is better than GARCH or EGARCH.