Volatility of Indian Stock Market

Stock market volatility plays a vital role in the economic development as well as growth. Daily volatility is calculated as a standard deviation of the natural log of daily returns on the indices for the respective months. Volatility in stock prices in India, by and large has exhibited a declining trend except over certain months. The market may have turned riskier, messy politics could resurface, and oil prices are at a new high (but at present low); but nothing seems to worry local investors, who feel the index can go up further. Understanding volatility is therefore central to risk management in an economy. Asymmetry in stock market volatility has its own significance, which implies volatility rises after negative shock than positive shock of similar magnitude. If the stock market is efficient, then the volatility of stock returns should be related to the volatility of the variables that affect asset prices.

• Reasons for the present slowdown:
  Historic crude oil prices, high inflation rates, weak industrial production data, RBI policies, political uncertainties and obviously the sentiments of domestic as well as FIIs influenced on the sensex volatility.
  
  The key benchmark indices ended lower as investors resorted to profit booking due to lack of positive triggers in the market
  
  Central banks across the globe warned that interest rates may have to rise as they look to keep inflation under control, despite the fact that economic growth is slowing in key nations such as the US and UK
  
  Investors dumped financials on concerns about the fallout from worsening global credit turmoil
  
  The global financial sector turmoil impacts sentiment in the local market and raises worries of more withdrawals by foreign funds.Presently, we can saw market plunging after the RBI announced further hikes in Repo rate as well as CRR both increased to 9%. Also, the serial blasts at Ahmadabad and Bangalore adding to the worries and enhancing the negative sentiments. And above all we can't see any positive trigger that can dilute the flow of negative news