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Nonlinear Dependence in Stock Returns: Evidences from India

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  • Gourishankar S Hiremath

    ()
    (University of Hyderabad, Hyderabad – 500 046.)

  • Bandi Kamaiah

    ()
    (University of Hyderabad, Hyderabad – 500 046.)

Abstract

This paper examines non-linear dependence in Indian stock returns using a set of non-linearity tests. The daily data between 1997 and 2009 for eight indices from National Stock Exchange (NSE) and six indices from Bombay Stock Exchange (BSE) are used. The results suggest strong evidence of non-linear structure in stock returns. The non-linear dependence, however, is not consistent throughout the sample period as indicated by windowed Hinich test [1996, Journal of Non-parametric Statistics, 6, 205-221] suggesting episodic nonlinear dependence in Indian stock returns. The existence of episodic non-linear dependency is associated with events such as uncertainties in international oil prices, sub-prime crisis followed by global economic meltdown, and political uncertainties among others.

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Bibliographic Info

Article provided by The Indian Econometric Society in its journal Journal of Quantitative Economics.

Volume (Year): 8 (2010)
Issue (Month): 1 (January)
Pages: 69-85

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Handle: RePEc:jqe:jqenew:v:8:y:2010:i:1:p:69-85

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Postal: Managing Editor, Journal of Quantitative Economics, Indira Gandhi Institute of Development Research (IGIDR), Gen. A.K. Vaidya Marg, Goregaon (E), Mumbai 400 065 , INDIA
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Keywords: Non-linearity; predictability; market efficiency; random walk; episodic dependence; windowed test.;

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References

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  1. Claudio Bonilla & Rafael Romero-Meza & Melvin Hinich, 2006. "Episodic nonlinearity in Latin American stock market indices," Applied Economics Letters, Taylor & Francis Journals, vol. 13(3), pages 195-199.
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Cited by:
  1. Urquhart, Andrew & Hudson, Robert, 2013. "Efficient or adaptive markets? Evidence from major stock markets using very long run historic data," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 130-142.

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