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Volatility Analysis of the Indian Stock Market: Insights from Bank Nifty Index and Futures Trading

Author

Listed:
  • Paientko Tetiana

    (Business School, HTW Berlin University of Applied Sciences, Germany)

  • Pundir Rashmi Ravindra Kumar

    (Business School, HTW Berlin University of Applied Sciences, Germany)

Abstract

Objective To diagnose the relationship between futures contract trading and the volatility of stocks in the Bank Nifty Index. Methodology Time series analysis and the GARCH model are employed to study the interaction between futures trading and spot market volatility. Findings The analysis revealed that out of the six banks analyzed, just two demonstrated a statistically significant influence of future trading on volatility, while the remaining four did not exhibit any such relationship. Value Added This study provides a nuanced understanding of the impact of futures trading on stock volatility within the Bank Nifty Index, specifically highlighting variations across banks. By including the COVID -19 period, this research captures the influence of unprecedented market shocks on volatility dynamics in an emerging market context, providing valuable insights into how futures trading operates under unique stress conditions. Moreover, the study fills a gap in the existing literature by including all top -weighted banks in the Bank Nifty, especially those that were previously overlooked, thereby enhancing the relevance of the findings for policymakers and market participants. Recommendations Policymakers and regulators should consider adopting tailored guidelines that reflect the different responses of individual banks to futures trading, as one-size-fits-all regulations may overlook stock -specific volatility dynamics. Market participants, especially investors and retail traders, are advised to apply targeted risk management and hedging strategies based on each bank’s unique volatility patterns rather than generalizing across the industry.

Suggested Citation

  • Paientko Tetiana & Pundir Rashmi Ravindra Kumar, 2024. "Volatility Analysis of the Indian Stock Market: Insights from Bank Nifty Index and Futures Trading," Journal of Intercultural Management, Sciendo, vol. 16(4), pages 5-41.
    • Handle: RePEc:vrs:joinma:v:16:y:2024:i:4:p:5-41:n:1001
    DOI: 10.2478/joim-2024-0013
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    References listed on IDEAS

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    More about this item

    Keywords

    volatility; future trading; bank index; stock market; spot market;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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