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A Research on Volatility in the Indian Stock Market with Special Reference to

Nifty and Selected Companies Offinancial Service Sector of NSE

Article in International Journal of Innovative Technology and Exploring Engineering · October 2019
DOI: 10.35940/ijitee.L1135.10812S19

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 International Journal of Innovative Technology and Exploring Engineering (IJITEE)
ISSN: 2278-3075, Volume-8 Issue-12S, October 2019

A Research on Volatility in the Indian Stock Market

with Special Reference to Nifty and Selected
Companies Offinancial Service Sector of NSE of
India
M.Pushpalatha, J. Srinivasan, G. Shanmugapriya 

Abstract- In recent years the increasing importance of the (BSE) has evolved. In 1956, the Government of India
future market in the Indian markets has received considerable recognized the Bombay Stock Exchange as the first stock
attention from researchers,academicians and financial exchange in the country under the Securities Contracts
analysis.the present study is undertaken with an attempt to
(Regulation) Act.The most decisive period in the history of
determine the share price movements and its volatility of the
selected ten companies of financial service sector,which is in the BSE took place after 1992. In the aftermath of a major
nifty fifty companies list.The period of the study selected between scandal with market manipulation involving a BSE member
January 2009 and December 2017.for examining the share price named Harshad Mehta, BSE responded to calls for reform
movements and its volatility,the researcher took descriptive with intransigence. The foot-dragging by the BSE helped
statistics and for finding the volatility ,kolmogorov- radicalise the position of the government, which encouraged
smirnovtest,from the results,among the selected ten financial
the creation of the National Stock Exchange (NSE), which
service companies are not homogenous during the study period,
and also examine the run test in Indian stock market is weak created an electronic marketplace. NSE started trading on 4
form efficient, the non-random behavior of the market has only November 1994. The stock market index is the most
short termimplications.Finally should take necessary steps to importantindices of all as it measures overall market
maintain its financial health and increase the market share in sentiment through a set of stocks that are representative of
India. the market. The stock market is a barometer of market
behavior. It reflects market direction and indicates day to
Keywords: Indian Stock Market,Efficiency. Volatility, Nifty,
day fluctuations in stock prices. The market index reflects
Stock Index.Selected Companies.
expectations about the behavior of economy as a whole. It is
I. INTRODUCTION a precursor of economic cycles. The function of stock index
is to provide investors with information regarding the
Capital market is a place for buying and selling of long- average share price in the market. Stock index is a
term financial claims. It is the market where transactions are barometer of nation?s economic health as market prices
made in long term securities such as stocks and bonds. The reflect expectation about the economy?s
participants of this market includes various financial performance.During 1980?s, growth of economy was highly
institutions, mutual funds, agents, brokers, dealers, unsustainable because of its dependence on borrowings to
individual investors and other borrowers and lenders of long correct the current account deficit. To reduce the
term debt and equity capital. Capital market consists of two imbalances, the government of India introduced economic
majorparts policy in 1991 to implement structural reforms. The
1) Primary Market and 2) Secondary market. financial sector at that time was much unstructured and its
The primary market or otherwise called as new issue scope was limited only to bonds, equity, insurance,
market is one in which long term capital is raised by commodity markets, mutual and pension funds. In order to
corporate directly from the public. The secondary market or structure the security market, a regulatory authority named
popularly called as the stock market refers to the market SEBI (Securities and Exchange Board of India) was
where these long-term financial instruments which are established and first electronic exchange National Stock
already issued in the primary market are traded. Exchange was also set up.

II. INDIAN STOCK MARKET III. STOCK MARKET EFFICIENCY

Indian stock market is one of the oldest stock market in It is general notion in the market that stock markets are
Asia. It dates back to the close of 18th century when the efficient and prices reflect all available information. There is
East India Company used to transact loan securities. In the extensive research literature available to see whether stock
1830s, trading on corporate stocks and shares in Bank and markets are efficient or not. Some academicians believe that
Cotton presses took place in Bombay. The trading was very stock market is weak efficient (Cootner, 1962; Fama, 19652;
little and it gradually improved. After a long journey, a Kendall, 19533; Granger & Morgenstern, 1970)4. While
formal stock exchange called Bombay Stock Exchange some others have belief that stock markets are not weak
efficient (Chaudhary, 19915; Ranganatham & Subramanian,
Revised Manuscript Received on September 14, 2019. 1993)6. The present study is an attempt to see the efficient
Dr. M.Pushpalatha, Assistant Professor of Commerce IT & E-Com, Sri form of Indian stock market.Efficiency of stock market has
Krishna Arts and Science College, Coimbatore, Tamilnadu, India.
J. Srinivasan, Assistant Professor of Commerce IT & E-Com, Sri
Krishna Arts and Science College, Coimbatore, Tamilnadu, India.
G. Shanmugapriya, Assistant Professor of Commerce IT & E-Com, Sri
Krishna Arts and Science College, Coimbatore, Tamilnadu, India.

Published By:
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Blue Eyes Intelligence Engineering
DOI: 10.35940/ijitee.L1135.10812S19 541 & Sciences Publication
 A Research On Volatility In The Indian Stock Market With Special Reference To Nifty And Selected Companies
Offinancial Service Sector Of Nse Of India
its implications for the whole economy and economic Volatility is the variation in asset prices change over a
development of any country. As, if stock market is efficient particular time period. It is very difficult to estimate the
enough then there is no need of government interference in volatility accurately. Volatility makes a stock market risky
the market movements. But, on the other side, in an but it provides the opportunity to make money by those who
inefficient market investor would like to take the benefit of can understand it. It gives the investor opportunity to take
extra ordinary information available to them. The role of advantage of fluctuation in prices, buy stock when prices
government and the regulators increase in this situation to fall and sell when prices rise. So, to take advantage of
keep a control on significant high differences in the stock volatility the need is to understand it.
prices. There are three forms of market efficiency i.e. strong
form, semi strong and weak form efficiency have different V. NEED FOR THE STUDY
consequences as far as excess returns are concerned. If Stock Market volatility is unavoidable. It is the nature of
market is weak-form efficient, no excess returns can be the stock markets to fluctuate and turn red and green within
received on the basis of study of past prices. This type of short span of time. Volatility is an essential part of the stock
study is called technical analysis which is based on the past market because it checks the nerve of the market. As a coin
prices study without any further information. If market is has two sides, the same way market has two aspects the
semi-strong efficient, no excess returns can be received by positive and the negative. It can be seen that volatility has its
the study of any publically available information. This study long term impact in the market so an investor is required to
is called fundamental analysis, the study of companies, take all possible measures to design his portfolio. Stock
sectorals and the whole economy can?t produce much returns bear a good relationship with volatility as with
returns than expected compared to risk involved. If market increase in financial volatility stock prices fluctuates. An
is strong-efficient, as prices are adjusted even for secret or average investor gets very less returns as compared to the
privately held information so no excess return can be average market returns.
received even by insidertrading.A stock market can be said
efficient if all past information, new information and even VI. OBJECTIVES OF THE STUDY
hidden information reflect in the security prices. It is general
notion in the market that stock markets are efficient and To evaluate the return and volatility relationship in NSE
prices reflect all available information. There is extensive Nifty and Nifty fifty Selected Companies of Financial
research literature available to see whether stock markets are Service Sector.
efficient or not. Some academicians believe that stock To identifies whetherNSE Nifty and Nifty fifty Selected
market is weak efficient (Cootner, 196293; Fama,196594; Companies of Financial Service Sector companies are
Kendall, 195395; Granger & Morgenstern, 197096). While efficient or not.
some others have belief that stock markets are not weak
efficient (Chaudhary, 199197). VII. METHODOLOGY
The study undertaken is analytical in nature using
IV. VOLATILITY IN INDIAN STOCK MARKET secondary data for the purpose of empiricalevaluation
Volatility is basically the variation from the average value ofstock price movements and its Efficiency . In this analysis,
over a measurement period. If the day to day variation of the has been taken ten companies of Financial Service Sector
price of the securities is more, it can be said that the which are listed in Nifty 50 at the year 2018. The ten
volatility of it will be high, and conversely if the day to day companies areAXIS,BOB,HDFC BANK,HDFC
variation is low, the value of volatility will be low as well. It Ltd.ICICI,INDUS,KOTAK,PNB,SBIN and YES BANK
is measured by the standard deviation of logarithmic returns .The selected period for this research study is from January
during a certain period. In the financial year 2008-09 stock 2009 to December 2018. This Paper uses various tools using
markets across the globe witnessed extreme volatility. NSE like Descriptive Statistics Kolmogorov-Smirnov Test and
Nifty came down by 179 points on 6th May 2015 due to Runs Test.
Greek debt crisis and other problems. It came down by 490
points on 24th August 2015 due to meltdown in the Chinese VIII. RESULTS AND DISCUSSION
stock market. On 24th June 2016, the Nifty came down by ANALYSIS OF DESCRIPTIVE STATISTICS OF
181 points due to Brexit referendum.Over the years it has DAILY RETURNS OF FINANCIAL SERVICE SECTOR
been observed that the correlation between Indian Stock Descriptive statistical analysis of returns series of AXIS,
Market and other world markets are on an increasing trend. BOB, HDFC Bank, HDFCL Ltd.,ICICI, KOTAK, PNB,
This phenomenon should explain the reason for increased SBI, YESBANK and INDUSIND is presented inTable 1. In
volatility exhibited by Indian markets during 2008-09 order to find the normality of the data, Jarque-bera test is
periods. When world markets move the valuation of Indian employed with the support of the following hypothesis
stocks are also affected.Investing money in stock market is testing.
assumed to be risky because stock markets are volatile. NullHypothesis(H0): The data is normally distributed for
There is volatility in stock market because macro economic companies intheFinancial Service Sector during the study
variables influence it and affect stock prices. These factors period.
can affect a single firm?s price and canbespecific to a firm.
On the contrary, some factors commonly affect all the firms.
For example, when stock market crashed in September
2008, the price of almost all listed companies came down.

Published By:
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Blue Eyes Intelligence Engineering
DOI: 10.35940/ijitee.L1135.10812S19 542 & Sciences Publication
 International Journal of Innovative Technology and Exploring Engineering (IJITEE)
ISSN: 2278-3075, Volume-8 Issue-12S, October 2019

Table No.1 Jarque-Bera test statistic has indicated that the null
Descriptive Statistics for Financial Service Sector hypothesis is rejected for all thecompanies in Financial
Service sector. So, it is observed that data in all the
companies in Financial Service sector were not normally
distributed.

IX. ANALYSIS OF KOLMOGOROV-

SMIRNOVTEST OF FINANCIAL SERVICE SECTOR
Kolmogorov-Smirnov test of return series of the Nifty
and Nifty fifty Selected Companies of Financial Service
Sector are presented in Table 2. In this test, the researcher
has examined the series of data for the are normally
distributed ornot. For this, a hypothesis framed and
discussed in the following table with using K-Stest.
NullHypothesis(H0):
The return series is homogenous for the selected Nifty
and Nifty Fifty Selected Companies of Financial Service
Sector during the study period.
Table No.3
Kolmogorov-SmirnovTest of Nifty and Nifty Fifty
Selected Companies of Financial Service Sector

Note: * - Significant at 5% level

The above Table.1 shows that all the companies of

Financial Service sector showed sign of positive average
daily returns except BOB, ICICI, PNB and SBI. The highest
average daily return was shown by INDUSIND which has
0.108%, followed by YESBANK with 0.095%, KOTAK
with 0.047%, AXIS with 0.018%, HDFC Bank with
0.017%,HDFCLLtdwith0.002%andthenegativereturnwasin
PNBandSBIwith-0.057%, followed by ICICI with -0.033%
and BOB with -0.019%. As far as volatility was concerned
the standard deviation of SBI was highest at 7.869%,
thereafter AXIS with standard deviation of 4.285% and the
lowest volatility was present inYESBANKwith 3.102%. It
can be seen that INDUSIND and YESBANK has more
return as well as less volatile as compared to other
companies of Financial Service sector.The coefficients of
the skewness were found to be significant and negative for
all the returns except INDUSIND and YESBANK. The
negative skewness implies that the return distributions of the
shares traded in the market in the given period have a higher
probability of earning returns greater than the mean.
Similarly, the coefficients of kurtosis were found to be
positive and were significantly higher than 3, indicating
highly leptokurtic distribution compared to the normal
distribution for all the returns. That means all the companies
of Financial Service sector are more risky forinvestment.The

Published By:
Retrieval Number: L113510812S19/2019©BEIESP
Blue Eyes Intelligence Engineering
DOI: 10.35940/ijitee.L1135.10812S19 543 & Sciences Publication
 A Research On Volatility In The Indian Stock Market With Special Reference To Nifty And Selected Companies
Offinancial Service Sector Of Nse Of India
From the above table, it is understood about the result showed that during the period, Indian stock market
homogenous of the given return series of the Niftyand Nifty follow random walk which means market is weak form
Fifty Selected Companies of Financial Service Sector efficient and investor can take benefit on the basis of
companies. The result of K-S statistics was significant for pastinformation.
all the series at 1% level which means that for a true random The result of runs test indicating that during the study
walk model, the null hypotheses of the selected companies period Niftyand and Nifty fifty Selected Companies of
are rejected and hence, it is found that the return series of Financial Service Sectorare significant so the null
theselected Niftyand Nifty fifty Selected Companies of hypothesis of random behavior is accepted and hence,
Financial Service Sector are not homogenous. It means Indian stock market is independent and are weak form
market did not follow random walk and were not weak form efficient. It can be concluded form the long term perspective
efficient. Indian stock market is weak form efficient, the non-random
behavior of the market has only short termimplications.
X. ANALYSIS OF RUNSTEST OF FINANCIAL
SERVICE SECTOR XII. CONCLUSION
Runs Test for returns series of Nifty and Nifty Fifty There was evidence from all the indices of time varying
Selected Companies of Financial Service Sector ofNational volatility which exhibited the sign of clustering, high
Stock Exchange are presented in Table 3. Actual number of persistence and predictability in India stock market. On the
runs, expected number of runs and standard error has been basis of results of various tests, it can be concluded that
calculated in this Table. Then z-values are calculated so that Nifty and NSE Nifty and Nifty fifty Selected Companies of
they can be compared with the critical value 1.96 in order to Financial Service Sector is fairly weak form efficient and
find out whether the difference between the actual number follow random walk during the study period. In this period,
of runs and expected number of runs is significant or Indian stock market is approaching towards the state of
insignificant. A negative Z value indicates a positive serial fairly weak efficient market.As per the results, stock market
correlation, whereas a positive Z value indicates a negative efficiency is improving which can be the results of
serial correlation. The positive serial correlation implies that improvement in technology, regulation regarding
there is a positive dependence of stock prices, therefore disclosures, and the amount of retail participation etc.In the
indicating a violation of random walk. nutshell, with the growth of technical facilities in the capital
market and removal of investment barriers, the integration
Null Hypothesis(H0):
of Indian stock market along with international stock
Price changes of the Nifty and Nifty Fifty Selected markets will increase infuture.
Companies of Financial Service Sector are not dependent
and mover and only. REFERENCES
The p-value of NSE was 0.035, AXISwith0.015,ICICI at
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companies stock are not reflected in current stock price. WEBSITE
a) https://www.nseindia.com/global/content/about_us/histor
XI. FINDINGS OF THE STUDY y_milestones.htm
From the analysis, it is noted that Nifty and NSE Nifty b) https://www.axisbank.com/
and Nifty fifty Selected Companies of Financial Service c) https://www.icicibank.com/
Sector were not normallydistributed.
The result of Kolmogorov-Smirnov statistics was
significant for all the series at 1% level which means that for
a true random walk model and hence, it is found that the
return series of the selected Nifty and Nifty fifty Selected
Companies of Financial Service Sector are not homogenous
during the study period. It means market did not follow
random walk and were not weak form efficient. Further the

Published By:
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DOI: 10.35940/ijitee.L1135.10812S19 544 & Sciences Publication
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