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Nonlinear Dependence in Stock Returns: Evidences from India

Author

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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.

Suggested Citation

  • Gourishankar S Hiremath & Bandi Kamaiah, 2010. "Nonlinear Dependence in Stock Returns: Evidences from India," Journal of Quantitative Economics, The Indian Econometric Society, vol. 8(1), pages 69-85, January.
  • Handle: RePEc:jqe:jqenew:v:8:y:2010:i:1:p:69-85
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Mirzaee Ghazani, Majid & Khalili Araghi, Mansour, 2014. "Evaluation of the adaptive market hypothesis as an evolutionary perspective on market efficiency: Evidence from the Tehran stock exchange," Research in International Business and Finance, Elsevier, vol. 32(C), pages 50-59.
    2. 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.
    3. Hiremath, Gourishankar S & Bandi, Kamaiah, 2010. "Do stock returns in India exhibit a mean reverting tendency? Evidence from multiple structural breaks test," MPRA Paper 46502, University Library of Munich, Germany.
    4. Vinodh Madhavan, 2014. "Investigating the nature of nonlinearity in Indian Exchange Traded Funds (ETFs)," Managerial Finance, Emerald Group Publishing, vol. 40(4), pages 395-415, March.

    More about this item

    Keywords

    Non-linearity; predictability; market efficiency; random walk; episodic dependence; windowed test.;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other

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