Comparative Study of Conditional Volatility of Indian and US Stock Markets Using Garch (1, 1) Model

Shailesh Rastogi1 and Vinay K. Srivastava2

1Jaipuria Institute of Management, 1-Bambala Institutional Area, Sanganer, Pratap Nagar, Jaipur-302 033, Rajasthan, India
2Raj Kumar Goel Institute of Technology (MBA), 5th KM Stone, Delhi – Meerut Road,  Ghaziabad – 201003, U.P. India

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Exponential GARCH model was employed to examine the impact of futures trading on spot market volatility of the twelve underlying shares of pharmaceutical sector of India. The empirical analysis was conducted for the daily closing price returns of each stock of pharmaceutical firms for the different time periods from 1st January, 1996 through 12th March, 2009. The analysis reveals mixed findings. Most of the selected pharmaceutical stocks reveal an introduction of futures market declined the volatility of underlying spot market. This is followed by positive impact of introduction of futures on the spot market volatility of the selected underlying shares of pharmaceutical firms in India. Besides, the empirical findings of most of the selected pharmaceutical scrips indicate the existence of positive asymmetric response to new information on the volatility of underlying spot market.

Keywords: EGARCH Model, Asymmetric Response, Information, Pharmaceutical Stocks