Asymmetric Effects and Volatility Clustering in NSE NIFTY 50: A Comparative Analysis of GARCH Models

Abstract

This study aims to analyze the volatility patterns, Clustering, and asymmetric effects in the NSE NIFTY 50 index. It involves using daily returns data from the NSE NIFTY 50 from 01 Jan 2010 to 31 Dec 2023. Daily closing prices are obtained from the official NSE website, and returns are calculated based on these prices. EGARCH (1, 1), TARCH (1, 1), GARCH (1, 1), GARCH-M (1,1), and models are utilized to predict volatility, capturing volatility clustering and leverage effects. Using both the Akaike and Schwarz criteria, EGARCH (1,1) was demonstrated to be the best model. The findings reveal that Fluctuations in the Indian stock market, particularly shown in the NIFTY index of the NSE were the highest in the year 2020 due to the COVID-19 pandemic. Past NIFTY returns demonstrate a GARCH effect on today’s NIFTY returns. The results of the research suggest that the impact of negative and positive shocks on the stock returns series varies. Volatility is largely caused by negative news compared to positive news. It is suggested that the model exhibits a leverage effect and that different types of information produce various types of shock to the volatility of the Nifty index return. The findings show that investors of NSE, particularly those involved with the NIFTY50, face heightened volatility and increased risk, especially during periods of significant events.