Description
A study considered a market performance of different sectors i.e. Information Technology and Banking with respect to the market. Further we analyzed that which sector is impacted most during the recession period.
Advances in Management & Applied Economics, vol.1, no.3, 2011, 127-133
ISSN: 1792-7544 (print version), 1792-7552 (online)
International Scientific Press, 2011
Financial Analysis on Indian Stock Market
Volatility during Recession
Kirti Arekar
1
and Rinku Jain
2
Abstract
In this article, a snapshot of the market performance during the two-year is
presented and compared with the major overseas markets. A study considered a
market performance of different sectors i.e. Information Technology and Banking
with respect to the market. Further we analyzed that which sector is impacted most
during the recession period. A number of parameters are used to capture the
market performance such as daily return, Volatility of daily return, market
capitalization and mutual fund activity. The period from J anuary 2007 to
November 2010 showed Indian market’s march towards the highest-ever levels of
market capitalization and stock indices in 2007, and, thereafter, a precipitous fall
in 2008. These include strong economic fundamentals, relatively stable political
climate and, hence, large foreign funds inflow. Finally, we interpreted that which
sector performing good and bad at this Global recession period and which sector
has performed good after the recession or we can say there is no impact of
1
K.J . Somaiya Institute of Management Studies& Research Vidya Nagar, Vidya
Vihar, Mumbai, India, e-mail: [email protected]
2
K.J . Somaiya Institute of Management Studies& Research Vidya Nagar, Vidya
Vihar, Mumbai, India, e-mail: [email protected]
Article Info: Revised: November 29, 2011. Published online: December 30, 2011
152 Financial Analysis on Indian Stock Market Volatility during Recession
recession for that particular sector.
JEL classification numbers: G11, G15
Keywords: Volatility, Stock Market and return
1 Introduction
The Indian Stock Market started falling from J anuary 2007 to J anuary 2010,
the descent accelerating towards the end of 2008, due the global fallout of the U.S.
mortgage crisis. After that there is a slowly improvement in the performance of
the Indian Stock market relative to the other World markets.
The study seeks to analyze the following aspects of the Indian stock market for the
years 2007 and 2010:
? The extent and pattern of daily returns on Sensex and Nifty and their
volatility.
? Comparison of Indian market performance with global markets in terms of
price trend, daily returns, and their volatility.
The following are the some of the important studies on the subject,
The study by French and Roll- French and Roll (1986) analyze the volatility of
equity returns during exchange trading and non-trading hours.
The study by J ones and Wilson- The study by J ones and Wilson (1989)
assesses whether the stock price volatility has increased, and whether it is
currently above or below historical level. They measured volatility using two
methods first is the percentage spread between high and low daily prices in each
month and secondly, the standard deviation of the daily prices within each month.
Kaur’s Study- The study by Kaur (2004) describes the extent and pattern of
stock return volatility of the Indian stock market during the last decade of the
previous millennium i.e. 1990 to 2000.
Kirti Arekar and Rinku J ain 153
2 Preliminary Notes
The Indian stock market is taken to be represented by the two most popular,
accepted and quoted indices, i.e. Sensex and Nifty. The market indices are fairly
representative of the various industry sectors and trading activity mostly revolves
around the stocks comprising the indices.
2.1 The Data
The closing price data for NSE Nifty has been taken from the NSE website
(www.nseindia.com) and BSE Sensex (www.bseindia.com) Measures of Daily
Return and Volatility The volatility of daily stock returns over a month has been
calculated as the standard deviation of daily returns on market indices. The returns
are calculated as log price differences in order to treat positive and negative
returns. Thus, standard deviation (volatility) o is defined as:
n
2
i 1
(n r)
=
o = ÷
¿
And the daily return,
|
.
|
\
|
÷
=
1 Pt
Pt
e
log rt
where
n =number of observation
t
r
=return on day t.
r =average return during the period of observation
t
P
=price on day t
1 t
P
÷
=price on the day before day t; i.e., day (t-1).
154 Financial Analysis on Indian Stock Market Volatility during Recession
3 Main Results
This section presents the results of the measurement of daily returns on the
domestic (Sensex and Nifty) and their volatility during the period of study. The
daily returns have been calculated as the difference between the natural logarithms
on daily closing prices on the consecutive days. From, these average daily return
(e.g. simply a mathematical average) and volatility (e.g. standard deviation) in a
month, year and over the full period of study (2007-2010) have been calculated.
Table 1 Indicate the average daily returns and their volatility over a month,
for Sensex and Nifty. This will help in taking a closer look at the market
performance during the period of study.
This section presents the results of the measurement of daily returns on the
domestic (Sensex and Nifty) and their volatility during the period of study. The
daily returns have been calculated as the difference between the natural logarithms
on daily closing prices on the consecutive days. From, these average daily return
(e.g. simply a mathematical average) and volatility (e.g. standard deviation) in a
month, year and over the full period of study (2007-2010) have been calculated.
Table 1 Indicate the average daily returns and their volatility over a month,
for Sensex and Nifty. This will help in taking a closer look at the market
performance during the period of study.
4 Conclusions
The period of four years (2007 to 2010) has been very eventful for the Indian
stock Market. It is evident that October 2008, when the US mortgage crises were
unveiled, was by far the worst month for investors. While the returns were most
negative, volatility was the highest in 2008 for both Senses and Nifty. And, the
return and volatility was also highest in month of 2009 but it is less than 2008. But
the year 2010 the return and volatility is less as compared to all the four years. So
Kirti Arekar and Rinku J ain 155
it is observed that volatility was higher the market was falling. Conversely, market
was less volatile while rising. These is because investors asymmetrical response to
negative and positive news. So, from the above study, we are able to interpret that
after the recession period now present Indian stock market is again going up and
the market condition is improving.
Table 1: Average daily return and Volatility in a month
(J anuary 2007 – November 2010)
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
Feb. 2007 -0.45 -0.45 1.54 1.56
Mar. 2007 0.05 0.10 1.95 2.00
April 2007 0.30 0.34 1.68 1.75
May 2007 0.23 0.24 0.80 0.85
J une 2007 0.03 0.27 0.82 0.72
J uly 2007 0.27 0.22 1.38 1.42
Aug. 2007 -0.07 -0.07 2.00 2.06
Sep. 2007 0.61 0.22 1.04 1.28
Oct. 2007 0.62 0.73 2.34 2.46
Nov. 2007 -0.11 -0.11 1.73 1.72
Dec. 2007 0.25 0.33 1.49 1.67
Max. Value 0.62
(Oct.2007)
0.73
(Oct. 2007)
2.34
(Oct. 2007)
2.46
(Oct. 2007)
Min. Value -0.45
(Feb. 2007)
-0.45
(Feb. 2007)
0.80
(May 2007)
0.72
(J une 2007)
156 Financial Analysis on Indian Stock Market Volatility during Recession
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
J an. 2008 -0.63 -0.77 2.95 3.29
Feb. 2008 -0.02 0.08 2.38 2.46
Mar. 2008 -0.65 -0.55 3.21 3.06
April 2008 0.50 0.44 1.40 1.28
May 2008 -0.26 -0.29 1.31 1.21
J une 2008 -0.94 -0.89 1.93 1.91
J uly 2008 0.28 0.30 3.30 2.97
Aug. 2008 0.07 0.03 1.73 1.61
Sep. 2008 -0.59 -0.51 2.50 2.32
Oct. 2008 -1.36 -1.53 5.19 5.03
Nov. 2008 -0.41 -0.26 3.85 3.83
Dec. 2008 0.28 0.34 2.53 1.38
Max. Value 0.5
(April 2008)
0.44
(April 2008)
5.19
(Oct. 2008)
5.03
(Oct. 2008)
Min. Value -1.36
(Oct. 2008)
-1.53
(Oct. 2008)
1.31
(May 2008)
1.21
(May 2008)
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
J an. 2009 -0.26185 -0.145037354 2.904857 2.743312
Feb. 2009 -0.10867 -0.20816591 1.679481 1.810869
Mar. 2009 0.635712 0.446457714 2.464981 2.348186
April 2009 0.884967 0.824403342 2.112435 2.187009
May 2009 0.975514 1.240664913 4.046535 4.158168
J une 2009 -0.11294 -0.16470714 1.71897 1.926197
J uly 2009 0.308381 0.337577363 2.208982 2.222631
Aug. 2009 -0.08179 0.026351853 1.751263 1.790387
Sep. 2009 0.5095 0.43443827 0.856604 0.924038
Oct. 2009 -0.39601 -0.381362383 1.074085 1.087792
Nov. 2009 0.497178 0.330547834 1.343761 1.584035
Dec. 2009 0.077131 0.157164848 0.959455 1.048561
Max.
Value
0.975514
(May)
1.240665
(May 2009)
4.046535
(May)
4.158168
(May 2009)
Min.
Value
-0.39601
(Oct)
-0.38136
(Oct. 2009)
0.856604
(Sep)
0.924038
(Sep. 2009)
Kirti Arekar and Rinku J ain 157
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
J an. 2010 -0.39478 -0.33415 0.958571 1.034413
Feb. 2010 0.023677 0.041179 1.154865 1.17897
Mar. 2010 0.220885 0.307036 0.552008 0.700841
April 2010 -0.04011 0.307036 0.823496 0.700841
May 2010 -0.12899 0.027537 1.509382 0.834224
J une 2010 0.314766 0.198387 1.029701 1.183742
J uly 2010 0.096933 0.047045 0.563995 0.638324
Aug. 2010 -0.02917 0.029465 0.607597 0.684053
Sep. 2010 0.488682 0.524913 0.744737 0.776883
Oct. 2010 -0.10227 -0.00971 0.994748 1.090264
Nov. 2010 -0.20991 -0.12464 1.234561 1.294116
Dec. 2010
Max. Value 0.488682
(Sep)
0.524913
(Sep. 2010)
1.509382
(May)
1.294116
(Nov. 2010)
Min. Value -0.39474
(J an)
-0.33415
(J an. 2010)
0.552008
(March)
0.638324
(J uly 2010)
References
[1] R. Aggarwaland and K. Tondon, Anomalies or illusions? Evidence from
stock market in Eighteen Countries, Journal of International Money and
Finance, 13, (1994), 83-106.
[2] K.K. Kumar and C. Mukhopadhay, A case of US and India, NSE Research
Inititiative, (2002).
[3] J .L. Sharma and R.E. Kennedy Comparative Analysis of Stock Price
Behavior on the Bombay, Landon and New York Stock Exchange, Journal of
Financial and Quantitative Analysis, (September, 1977), 391-403.
doc_865481260.pdf
A study considered a market performance of different sectors i.e. Information Technology and Banking with respect to the market. Further we analyzed that which sector is impacted most during the recession period.
Advances in Management & Applied Economics, vol.1, no.3, 2011, 127-133
ISSN: 1792-7544 (print version), 1792-7552 (online)
International Scientific Press, 2011
Financial Analysis on Indian Stock Market
Volatility during Recession
Kirti Arekar
1
and Rinku Jain
2
Abstract
In this article, a snapshot of the market performance during the two-year is
presented and compared with the major overseas markets. A study considered a
market performance of different sectors i.e. Information Technology and Banking
with respect to the market. Further we analyzed that which sector is impacted most
during the recession period. A number of parameters are used to capture the
market performance such as daily return, Volatility of daily return, market
capitalization and mutual fund activity. The period from J anuary 2007 to
November 2010 showed Indian market’s march towards the highest-ever levels of
market capitalization and stock indices in 2007, and, thereafter, a precipitous fall
in 2008. These include strong economic fundamentals, relatively stable political
climate and, hence, large foreign funds inflow. Finally, we interpreted that which
sector performing good and bad at this Global recession period and which sector
has performed good after the recession or we can say there is no impact of
1
K.J . Somaiya Institute of Management Studies& Research Vidya Nagar, Vidya
Vihar, Mumbai, India, e-mail: [email protected]
2
K.J . Somaiya Institute of Management Studies& Research Vidya Nagar, Vidya
Vihar, Mumbai, India, e-mail: [email protected]
Article Info: Revised: November 29, 2011. Published online: December 30, 2011
152 Financial Analysis on Indian Stock Market Volatility during Recession
recession for that particular sector.
JEL classification numbers: G11, G15
Keywords: Volatility, Stock Market and return
1 Introduction
The Indian Stock Market started falling from J anuary 2007 to J anuary 2010,
the descent accelerating towards the end of 2008, due the global fallout of the U.S.
mortgage crisis. After that there is a slowly improvement in the performance of
the Indian Stock market relative to the other World markets.
The study seeks to analyze the following aspects of the Indian stock market for the
years 2007 and 2010:
? The extent and pattern of daily returns on Sensex and Nifty and their
volatility.
? Comparison of Indian market performance with global markets in terms of
price trend, daily returns, and their volatility.
The following are the some of the important studies on the subject,
The study by French and Roll- French and Roll (1986) analyze the volatility of
equity returns during exchange trading and non-trading hours.
The study by J ones and Wilson- The study by J ones and Wilson (1989)
assesses whether the stock price volatility has increased, and whether it is
currently above or below historical level. They measured volatility using two
methods first is the percentage spread between high and low daily prices in each
month and secondly, the standard deviation of the daily prices within each month.
Kaur’s Study- The study by Kaur (2004) describes the extent and pattern of
stock return volatility of the Indian stock market during the last decade of the
previous millennium i.e. 1990 to 2000.
Kirti Arekar and Rinku J ain 153
2 Preliminary Notes
The Indian stock market is taken to be represented by the two most popular,
accepted and quoted indices, i.e. Sensex and Nifty. The market indices are fairly
representative of the various industry sectors and trading activity mostly revolves
around the stocks comprising the indices.
2.1 The Data
The closing price data for NSE Nifty has been taken from the NSE website
(www.nseindia.com) and BSE Sensex (www.bseindia.com) Measures of Daily
Return and Volatility The volatility of daily stock returns over a month has been
calculated as the standard deviation of daily returns on market indices. The returns
are calculated as log price differences in order to treat positive and negative
returns. Thus, standard deviation (volatility) o is defined as:
n
2
i 1
(n r)
=
o = ÷
¿
And the daily return,
|
.
|
\
|
÷
=
1 Pt
Pt
e
log rt
where
n =number of observation
t
r
=return on day t.
r =average return during the period of observation
t
P
=price on day t
1 t
P
÷
=price on the day before day t; i.e., day (t-1).
154 Financial Analysis on Indian Stock Market Volatility during Recession
3 Main Results
This section presents the results of the measurement of daily returns on the
domestic (Sensex and Nifty) and their volatility during the period of study. The
daily returns have been calculated as the difference between the natural logarithms
on daily closing prices on the consecutive days. From, these average daily return
(e.g. simply a mathematical average) and volatility (e.g. standard deviation) in a
month, year and over the full period of study (2007-2010) have been calculated.
Table 1 Indicate the average daily returns and their volatility over a month,
for Sensex and Nifty. This will help in taking a closer look at the market
performance during the period of study.
This section presents the results of the measurement of daily returns on the
domestic (Sensex and Nifty) and their volatility during the period of study. The
daily returns have been calculated as the difference between the natural logarithms
on daily closing prices on the consecutive days. From, these average daily return
(e.g. simply a mathematical average) and volatility (e.g. standard deviation) in a
month, year and over the full period of study (2007-2010) have been calculated.
Table 1 Indicate the average daily returns and their volatility over a month,
for Sensex and Nifty. This will help in taking a closer look at the market
performance during the period of study.
4 Conclusions
The period of four years (2007 to 2010) has been very eventful for the Indian
stock Market. It is evident that October 2008, when the US mortgage crises were
unveiled, was by far the worst month for investors. While the returns were most
negative, volatility was the highest in 2008 for both Senses and Nifty. And, the
return and volatility was also highest in month of 2009 but it is less than 2008. But
the year 2010 the return and volatility is less as compared to all the four years. So
Kirti Arekar and Rinku J ain 155
it is observed that volatility was higher the market was falling. Conversely, market
was less volatile while rising. These is because investors asymmetrical response to
negative and positive news. So, from the above study, we are able to interpret that
after the recession period now present Indian stock market is again going up and
the market condition is improving.
Table 1: Average daily return and Volatility in a month
(J anuary 2007 – November 2010)
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
Feb. 2007 -0.45 -0.45 1.54 1.56
Mar. 2007 0.05 0.10 1.95 2.00
April 2007 0.30 0.34 1.68 1.75
May 2007 0.23 0.24 0.80 0.85
J une 2007 0.03 0.27 0.82 0.72
J uly 2007 0.27 0.22 1.38 1.42
Aug. 2007 -0.07 -0.07 2.00 2.06
Sep. 2007 0.61 0.22 1.04 1.28
Oct. 2007 0.62 0.73 2.34 2.46
Nov. 2007 -0.11 -0.11 1.73 1.72
Dec. 2007 0.25 0.33 1.49 1.67
Max. Value 0.62
(Oct.2007)
0.73
(Oct. 2007)
2.34
(Oct. 2007)
2.46
(Oct. 2007)
Min. Value -0.45
(Feb. 2007)
-0.45
(Feb. 2007)
0.80
(May 2007)
0.72
(J une 2007)
156 Financial Analysis on Indian Stock Market Volatility during Recession
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
J an. 2008 -0.63 -0.77 2.95 3.29
Feb. 2008 -0.02 0.08 2.38 2.46
Mar. 2008 -0.65 -0.55 3.21 3.06
April 2008 0.50 0.44 1.40 1.28
May 2008 -0.26 -0.29 1.31 1.21
J une 2008 -0.94 -0.89 1.93 1.91
J uly 2008 0.28 0.30 3.30 2.97
Aug. 2008 0.07 0.03 1.73 1.61
Sep. 2008 -0.59 -0.51 2.50 2.32
Oct. 2008 -1.36 -1.53 5.19 5.03
Nov. 2008 -0.41 -0.26 3.85 3.83
Dec. 2008 0.28 0.34 2.53 1.38
Max. Value 0.5
(April 2008)
0.44
(April 2008)
5.19
(Oct. 2008)
5.03
(Oct. 2008)
Min. Value -1.36
(Oct. 2008)
-1.53
(Oct. 2008)
1.31
(May 2008)
1.21
(May 2008)
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
J an. 2009 -0.26185 -0.145037354 2.904857 2.743312
Feb. 2009 -0.10867 -0.20816591 1.679481 1.810869
Mar. 2009 0.635712 0.446457714 2.464981 2.348186
April 2009 0.884967 0.824403342 2.112435 2.187009
May 2009 0.975514 1.240664913 4.046535 4.158168
J une 2009 -0.11294 -0.16470714 1.71897 1.926197
J uly 2009 0.308381 0.337577363 2.208982 2.222631
Aug. 2009 -0.08179 0.026351853 1.751263 1.790387
Sep. 2009 0.5095 0.43443827 0.856604 0.924038
Oct. 2009 -0.39601 -0.381362383 1.074085 1.087792
Nov. 2009 0.497178 0.330547834 1.343761 1.584035
Dec. 2009 0.077131 0.157164848 0.959455 1.048561
Max.
Value
0.975514
(May)
1.240665
(May 2009)
4.046535
(May)
4.158168
(May 2009)
Min.
Value
-0.39601
(Oct)
-0.38136
(Oct. 2009)
0.856604
(Sep)
0.924038
(Sep. 2009)
Kirti Arekar and Rinku J ain 157
Month Daily Return (%) Volatility (%)
Sensex Nifty Sensex Nifty
J an. 2010 -0.39478 -0.33415 0.958571 1.034413
Feb. 2010 0.023677 0.041179 1.154865 1.17897
Mar. 2010 0.220885 0.307036 0.552008 0.700841
April 2010 -0.04011 0.307036 0.823496 0.700841
May 2010 -0.12899 0.027537 1.509382 0.834224
J une 2010 0.314766 0.198387 1.029701 1.183742
J uly 2010 0.096933 0.047045 0.563995 0.638324
Aug. 2010 -0.02917 0.029465 0.607597 0.684053
Sep. 2010 0.488682 0.524913 0.744737 0.776883
Oct. 2010 -0.10227 -0.00971 0.994748 1.090264
Nov. 2010 -0.20991 -0.12464 1.234561 1.294116
Dec. 2010
Max. Value 0.488682
(Sep)
0.524913
(Sep. 2010)
1.509382
(May)
1.294116
(Nov. 2010)
Min. Value -0.39474
(J an)
-0.33415
(J an. 2010)
0.552008
(March)
0.638324
(J uly 2010)
References
[1] R. Aggarwaland and K. Tondon, Anomalies or illusions? Evidence from
stock market in Eighteen Countries, Journal of International Money and
Finance, 13, (1994), 83-106.
[2] K.K. Kumar and C. Mukhopadhay, A case of US and India, NSE Research
Inititiative, (2002).
[3] J .L. Sharma and R.E. Kennedy Comparative Analysis of Stock Price
Behavior on the Bombay, Landon and New York Stock Exchange, Journal of
Financial and Quantitative Analysis, (September, 1977), 391-403.
doc_865481260.pdf