Stock market volatility before and after implementation of VIX in India

Abstract

Stock market volatility has always been an area of concern for market participants and policy regulators. Through this paper, an attempt has been made to model the volatility in the Indian equity market by employing the standard GARCH(1, 1) model. The paper also investigates whether the volatility on NSE has changed after the introduction of Volatility Index (India VIX) through the GARCH(1,1) model with a dummy. Accordingly, the period of study for measuring the volatility has been split into two, i.e., the pre-IVIX introduction period (January 1, 2000 to October 31, 2007) and the post-IVIX introduction period (November 1, 2007 to August 31, 2016). The results of GARCH(1,1) model with a dummy reveal that the volatility of the spot market has declined after the introduction of IVIX in India. In addition, the results of standard GARCH(1,1) models provide evidence that recent news has a greater impact on the spot market changes in the post-IVIX introduction period.