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FINAL RESEARCH PROJECT
COMPARATIVE ANALYSIS OF STOCKVOLATILITY BETWEEN NSE & BSE
SUBMITTED IN PARTIALFULFILLMENT OF MBA PROGRAM
2009-12
RESEARCH GUIDE SUBMITTED BY
MRS. ANUPAMA SINGH SHIVA OJHAFACULTY GEU R.NO. :2400513
GRAPHIC ERA UNIVERSITY,DEHRADUN
Graphic Era University , Dehradun ( U.K.)
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ABSTRACT
The aim of the present study is to evaluate the stock price fluctuation and why there is a
difference in this volatility in the same stock listed in two markets i.e. NSE and BSE even
though they are working in the same economic environment. The study builds a
framework and analyses the sentiments of people towards given stock and we will focus
on how these sentiments affect the stock prices and made them fluctuate. The study also
focus on that there is difference in fluctuation in prices in both the markets and to try and
found out is there any difference in volatility between NSE and BSE and how it can be
used by the investors.
The research work is done by considering 20 stocks listed on both National Stock
Exchange and Bombay Stock Exchange of India. The research in done based on
secondary information gather from different literatures. In this report, we focus upon one
aspect of GARCH models, namely, their ability to deliver volatility forecasts. In other
words, these models are useful not only for modeling the historical process of volatility
but also in giving us multi-period ahead forecasts. These forecasts are, of course, of great
value in applications to stock return data.
There are many theories that try to explain the way stock prices move the way they do.
Unfortunately, there is no one theory that can explain everything. Through this report, an
effort has been made to analyse the Stock volatility between NSE and BSE and an
attempt to understand which market is more volatile and why. Being working in the same
economy, both has different volatility. The most important factor which motivated me to
do the study is the fluctuations in the price of individual stocks, as well as market indices.
Research showed that there exist a difference in volatility between NSE and BSE and can
help investors earn more taking advantage of this difference and earning in the process of
arbitrage.
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TABLE OF CONTENTS
CHAPTER CONTENT PAGE
1
1. INTRODUCTION
1.1 Introduction of the Capital Market
1.2 History of Indian Capital Market
1.3 Capital Market Scams
1.4 International Scenario
1.5 Introduction to Methodology
1.5 (a) Research Questions
1.5 (b) Research Objective
1.5 (c) Scope of the study
1.5 (d) Hypothesis for the research
1
3
9
11
12
12
12
12
2 2. LITERATURE REVIEW 14
3
3. RESEARCH METHODOLOGY
Mode of Data Collection
3.1 Research Design
3.2 Data Collection Methodology
17
17
4 4. DATA ANALYSIS AND PRESENTATION
Mechanics of Computation of Data
20 Companies Analysis
4.1 ACC Ltd.
4.2 Bajaj Auto Ltd.
4.3 Cipla Ltd.
4.4 Dr. Reddys Labs
4.5 Grasim Industries Ltd.
19-61
20
2224
26
28
30
32
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4.6 Gujrat Ambuja Cement Ltd.
4.7 Housing Development Finance Corporation Ltd.
(HDFC)
4.8 HDFC Bank Ltd.
4.9 Hero Honda Motor Ltd.
4.10 Hindustan Lever Ltd.
4.11 Hindalco Industries Ltd.
4.12 ICICI Bank
4.13 Infosys Technologies
4.14 ITC Ltd.
4.15 Maruti Udyog
4.16 NTPC
4.17 ONGC
4.18 Reliance Industries
4.19 Tata Steel
4.20 Wipro Ltd.
34
36
38
40
42
44
46
48
50
52
54
56
58
60
55. RECOMMENDATIONS 62
6 6. CONCLUSION 64
7 7. BIBLIOGRAPHY 65
8 8. Appendix
66
List of Figures
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Chapter 1:- INTRODUCTION
1.1 INRODUCTION TO THE CAPITAL MARKET
The Indian stock market provides a very high rate of return and comparatively moderate
volatility. Efficiency of The Indian market appear to have improved in the past few years
owing to contraction in settlement cycles, introduction of derivative products,
improvement in corporate governance practices etc,. Stock markets return exhibit
informational efficiency and approximates to normal distribution.
The Capital Market is an important constituent of the financial system. It is market for
long term funds both equity and debt and funds raised within and outside the country.
The Capital Market aids economic growth by mobilizing the saving of the economic
sectors and directing the same towards channels of productive uses. This is facilitated
through the following measures:
1. Issue of primary securities in the primary market, that is, directing cash flows
from the surplus sectors to the deficit sectors such as the government and the
corporate sector.
2. Issue of secondary securities in the primary market, that is, directing cash flows
from the surplus sectors to financial intermediaries such as banking and non
banking financial institutions.
3. Secondary market transactions in outstanding securities which facilitate
liquidity. The liquidity of the stock market is an important factor affecting growth.Many profitable projects require long-term finance and investment which means
locking up funds for a long period. It is the presence of the liquid secondary
market that attracts investors because it ensures a quick exit without heavy losses
or costs.
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The Capital market and securities transactions are regulated by the Capital market
division of the Department of Economic Affairs. The Indian Financial system is regulated
and supervised by two government agencies under the Ministry of Finance. They are:
a) The Reserve Bank Of Indian (RBI)
b) The Securities Exchange Board of India (SEBI)
A stock exchange, share market or bourse is a corporation or mutual organization which
provides facilities for stock brokers and traders, to trade company stocks and other
securities. Stock exchanges also provide facilities for the issue and redemption of
securities, as well as, other financial instruments and capital events including the payment
of income and dividends. The securities traded on a stock exchange include: - shares
issued by companies, unit trusts and other pooled investment products and bonds. To be
able to trade a security on a certain stock exchange, it has to be listed there. Usually there
is a local and central location at least for record keeping, but trade is less and less linked
to such a physical place, as modern markets are electronic networks, which gives them
advantage of speed and cost of transactions. Trade on an exchange is by members only
and share holders. The initial offering of stocks and bonds to investors is by definition
done in the primary market and subsequent trading is done in the secondary market. A
stock exchange is often the most important component of a stock market. Supply and
demand in stock markets is driven by various factors which, as in all free markets, affect
the price of stocks.
There is usually no compulsion to issue stock via the stock exchange itself, nor must
stock be subsequently traded on the exchange. Such trading is said to be off-exchange or
over-the-counter. This is the usual way that bonds are traded. Increasingly, stock
exchanges are part of the global market for securities.
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1.2 HISTORY OF INDIAN CAPITAL MARKET
The history of the capital market in India dates back to the eighteen century when East
Indian Company securities were traded in the country. Until the end of nineteenthcentury, securities trading was unorganized and the main trading centres were Bombay
(now Mumbai) and Calcutta (now Kolkata). Of the two, Bombay was the chief trading
centre wherein bank shares were the major trading stock. During the American Civil War
(1860-61), Bombay was an important source of supply for cotton. Hence, trading
activities flourished during the period, resulting in a boom in share prices. This boom, the
first in the history of the Indian Capital market, lasted for a half decade. The bubble burst
on July 1,1865, when there was tremendous slump in the share prices.
Trading was at that time limited to a dozen brokers, their trading place was under a
banyan tree in front of the Town Hall in Bombay. These stock brokers organized an
informal association in 1875 Native Shares and Stock Brokers Association, Bombay.
The stock exchange in Calcutta and Ahmedabad, also industrial trading centers, came up
later. The Bombay Stock Exchange was recognized in May 1927 under the Bombay
securities Contract Control Act, 1925.
The capital market was not well organized and developed during the British rule because
the British government was not interested in the economic growth of the country. As a
result, many foreign companies depend on the London capital market for funds rather
than on the Indian Capital Market.
In the post-independence period also, the size of the capital market remained small.
During the first and second five year plans, the governments emphasis was on the
development of the agricultural sector and public sector undertakings. The public sector
undertakings were healthier than the private undertakings in terms of paid-up capital but
their shares were not listed on the stock exchange. Moreover, The Controller of Capital
Issue (CCI) closely supervised and controlled the timing, composition, interest rate,
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pricing, allotment, and floatation costs of new issues. These strict regulations
demotivated many companies from going public for almost four and half decades.
In the 1950s, Century Textiles, Tata Steel, Bombay Dyeing, National Rayon, and
Kohinoor Mills were the favourite scrips of speculators. As speculation become
rampant, the stock market came to be known as Satta Bazaar. Despite speculation, non-
payment or default were not very frequent. The government enacted the Securities
Contracts (Regulation) Act in 1956 to regulate stock market. The Companies Act, 1956
was also enacted. The decade of the 1950s was also characterized by the establishment
of a network for the development of financial institutions and state financial corporations.
The 1960s was characterized by wars and droughts in the country which led to bearish
trends. These trends were aggravated by the ban in 1969 on forward trading and badla,
technically called contracts for clearing. Badla Provided a mechanism for carrying
forward positions as well as for borrowing funds. Financial institutions such as LIC and
GIC helped to revive the sentiment by emerging as the most important group of investors.
The first mutual fund of India, the Unit Trust of India (UTI) came into existence in 1964.
In the 1970s, badla trading was resumed under the disguised form of hand-delivery
contracts A group. This revived the market. However, the capital market received
another severe setback on July 6, 1974, when the government promulgated the Dividend
Restriction Ordinance, restricting the payment of dividend by companies to 12% of the
face value or one-third of the profits of the companies that can be distributed as computed
under section 369 of Companies Act, whichever was low. This led to slump in market
capitalization at the BSE by about 20% overnight and the stock market did not open for
nearly a fortnight. Later come buoyancy in the stock market when the multinational
companies (MNCs) were force to dilute their majority stocks in the Indian ventures in
the favour of the Indian public under FERA, 1973. Several MNCs opted out of India. 123
MNCs offered shares worth Rs. 150 crores, creating 1.8 million shareholders within four
years. The offer prices of FERA shares were lower than their intrinsic worth. Hence, for
the first time, the FERA dilution created an equity cult in India. It was the spate of FERA
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issues that gave a real fillip to the Indian stock markets. For the first time, many investors
got an opportunity to invest in the stocks of such MNCs as Colgate, and Hindustan Liver
Limited. Then, in 1977, a little known entrepreneur, Dirubhai Ambani, tapped the capital
market. The scrip, Reliance Textiles, is still a hot favourite and dominates trading at all
stock exchanges.
The 1980s witnessed an explosive growth of the securities market in India, with millions
of investors suddenly discovering lucrative opportunities. Many investors jumped into the
stock market for the first time. The government liberalization process initiated during the
mid- 1980s, spurred this growth. Participation by small investors, speculation, defaults,
ban or badla continued. Convertible debentures emerged as a popular instrument of
resource mobilisation in the primary market. The introduction of public sector bonds and
the successful mega issues of Reliance Petrochemicals and Larsen and Toubro gave a
new lease of life to the primary market. This, in turn, enlarged volumes in the secondary
market. The decade of the 1980s was characterised by an increase in the number of stock
exchanges, listed companies, paid up capital, and market capitalization.
The 1990s will go down as the most important decade in the history of the capital market
of India. Liberalization and globalization were the new terms coined and marked during
this decade. The Capital Issues (Control) Act, 1947 was repealed in May 1992. The
decade was characterised by a new industrial policy, emergence of SEBI as a regulator of
capital market, advent of foreign institutional investors, euro-issues, free pricing, new
trading practices, new stock exchanges, entry of new players such as private sector
mutual funds and private sector banks, and primary market boom and bust.
Major capital market scams took place in the 1990s. These shook the capital market and
drove away small investors from the market. The securities scam of March 1992 involved
brokers as well as bankers was one of the biggest scams in the history of the capital
market. In the subsequent years owing to free pricing, many unscrupulous promoters,
who raised money from the capital market, proved to be fly-by-night operators. This led
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to erosion in the investors confidence. The M S Shoes case, one such scam which took
place in March 1995, put a break on new issue activity.
The 1991 92 securities scam revealed the inadequacies in the financial system. It was
the scam which prompted a reform of the equity market. The Indian Stock market
witnessed a sea change in terms of technology and market prices. Technology brought
radical changes in the trading mechanism. The Bombay Stock Exchange was subject to
nationwide competition by two new stock exchanges the National Stock Exchange, set
up in 1994, and Over the Counter Exchange of India, set up in 1992. The National
Securities Clearing Corporation (NSCC) and National Securities Depository Limited
(NSDL) were set up in April 1995 and November 1996 respectively for improved
clearing and settlement and dematerialized trading. The Securities Contracts (Regulation)
Act, 1956 was amended in 1995-96 for introduction of options trading. Moreover, rolling
settlement was introduced in January 1998 for the dematerialized segment of all
companies. With automation and geographical spread, stock market participation
increased.
In the late 1990s, the Information Technology (IT) scrips were dominant on the Indian
bourses. These scrips included Infosys, Wipro, and Satyam. They were a part of the
favourite scrips of the period, also known as New Economy scrips, along with
telecommunications and media scrips. The new economy companies are knowledge
intensive unlike the old economy companies that were asset intensive.
The Indian capital market entered the twenty-first century with the Ketan Parekh scam.
As a result of this scam, badla was discontinued from July 2001 and rolling settlement
was introduced in all scrips. Trading of futures commenced from June 2000, and internet
trading was permitted in February 2000. On July 2, 2001, the Unit Trust of India
announced suspension of the sale and repurchases of its flagship US 64 schemes due to
heavy redemption leading to panic on the bourses. The governments decisions to
privatise oil PSUs in 2003 fuelled stock prices. One big divestment of international
telephony major VSNL took place in early February 2002. Foreign institutional investors
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have emerged as major players on the Indian bourses. NSE has an upper hand over its
rival BSE in terms of volumes not only in equity markets but also in the derivatives
market.
It has been a long journey for the Indian capital market. Now the capital market is
organized, fairly integrated, mature, more global and modernized. The Indian equity
market is one of the best in the world in terms of technology. Advances in computers and
communications technology, coming together on Internet are shattering geographic
boundaries and enlarging the investor class. Internet trading has become a global
phenomenon. The Indian stock markets are now getting integrated with global markets.
The two largest markets in India are the National Stock Exchange (NSE) and the Bombay
Stock Exchange (BSE) which together accounted for more than 98% of the total turnover
for all markets in 2003-04.
Of these, the NSE is the large one, with a turnover that is slightly more than double that
of BSE, although their market capitalizations are comparable.
Bombay Stock Exchange
BSE was founded in 1875, and is the oldest stock market in Asia. It has the largest
number of companies listed and traded, among all the exchanges in India. The market
indices associated with it, namely BSE 30, BSE 100 and BSE 500, are closely followed
indicators of the health of the Indian Financial Market. The stocks belonging to BSE 500
represents nearly 93% of the total market capitalization in that exchange.
There are around 3,500 Indian companies listed with the stock exchange, and has
significant trading volume. At October 2006, the market capitalization of BSE was about
Rs. 33.4 trillion (US $ 730 billion). The BSE (BSE implies yoursensitivity index), also
called the BSE 30, is a widely used market index in India and Asia. As of 2005, is it
among the five biggest stock exchanges in the world in terms of transactions volume.
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The BSE is a value-weighted index composed of thirty scrips, with the base April
1979=100. The set of companies which make up the index has been changed only a few
times in last twenty years. These companies account for around one-fifth of the market
capitalization of the BSE.
National Stock Exchange
TheNational Stock Exchange of India Ltd. (NSE), set up in the year 1993, istoday the largest stock exchange in India and a preferred exchange for trading in
equity, debt and derivatives instruments by investors. NSE has set up a sophisticated
electronic trading,clearing and settlement platform and its infrastructure serves as a
role model for the securities industry. The standards set by NSE in terms of market
practices; products and technology have become industry benchmarks and are being
replicated by many other market participants. It provides a screen-based automated
trading system with a high degree of transparency and equal access to investors
irrespective of geographical location. The high level of information
dissemination through the on-line system has helped in integrating retail
investors across the nation. The exchange has a network in more than 350 cities and
its trading members are connected to the central servers of the exchange inMumbai through a sophisticated telecommunication network comprising of over
2500 VSATs. NSE has around850 trading members and provides trading in over
1000equity shares and 2500 debt securities. Besides this, NSEprovides trading in
various derivative products such as index futures, index options, stock futures,
stock options and interest rate futures.
The most important market index associated with the NSE is the NSE. The 50 stocks
comprising the NSE index represent about 58% of the total market capitalization and
47% of the traded value of all stocks in the NSE (as of Dec 2005).
In March 2006, the NSE had a total market capitalization of 4,380,774 crores INR
making it the second-largest stock market in South Asia in terms of market-
capitalization
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1.3 CAPITAL MARKET SCAMS
The post-economic liberalization era witnessed scams with cyclic regularity in the
Indian capital market. The series of scams in the capital market may lead someone tobelieve that scams and liberalization are correlated phenomena.
The most infamous scam, know as the 1992 securities scam, was master-minded by
Harshad Mehta and other bull operators, not without the connivance and collusion of
banks. The consequences were so serious that the Bombay Stock Exchange remained
closed for a month. This was followed by scams by unscrupulous promoters mostly of
finance companies who took advantage of free pricing to raise money by price
rigging. Such fly-by-night operators jolted both the stock exchange and investors.
Besides price rigging, grey market activities were common where the share prices
were quoted at a premium before they were listed on the stock exchange. For instance,
a Morgan Stanley Mutual Fund unit worth Rs. 10 was commanding a premium of Rs.
18, that is, it was quoted at Rs. 28 during the subscription period. In March 1995,
another scam known as the M S Shoes scam masterminded by an exporter, Pavan
Sachdeva, rigged up prices of shares, leading eventually to a crash. Once again the
market has to be closed for three days. In December 1995, the reliance shares issue
share switching scam sprung up in which Fair Growth Financial Services, Reliance
Industries, and the stock exchange itself was involved. The Bombay Stock Exchangesuspended trading in famous RIL scrips for three days.
C R Bhansali, a charted accountant, shook the countrys financial system in May
1997. He identified weakness in the regulatory framework of the countrys financial
system. By trimming the balance sheets of CRB capital markets, he positioned the
company as a unique financial organization with excellent prospects. This created for
him an almost unlimited supply of deposits with high interest rates on one hand, and
provided him leverage to rig prices in the market on the other. The investors were
lured to part with their money and risk their future.
Price rigging became a recurring ailment of the Indian capital market. This is clearly
evident from the fact that in 1998 the technique of price rigging was successfully
applied in case of the BPL Videocon and Sterlite scrips, which created a payment
crisis. Brokers, who acted in concert with Harshad Mehta, had taken large positions in
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these scrips. As a consequence, these scrips had to be debarred from the market for
couple of years. J C Parekh, the then President, and other key members on the board
of BSE were sacked by SEBI for price rigging and insider trading in this case. The
history of inside trading was repeated in March 2001 when Anand Rathi, the then
President of BSE, was caught red handed and thereafter sacked by SEBI along with
six other broker directors. Ketan Parekh, the new big bull, once again exploited the
loopholes and the Anand Rathi bear cartel hammered the market. The hammering
rocked the share market again.
All the scamsters employed common ploys like price manipulations, price rigging,
insider trading, cartels, collusion and nexus among bankers, brokers, politicians and
promoters. These ploys were successfully engineered and implemented particularly
around public issues or mergers. The regulators were so ineffective that actions wereundertaken only after the investors were looted of their hard earned money. The
ignorance of investors and greed for quick money made the scamsters job all the more
easy. Post scam inquiries are being carried on.
The scams highlighted the loopholes in the financial system, unfair practices in
various instruments, widespread corruption, and wrong policies. The Reserve Bank
banned inert-bank repos after the scam and the pace of reforms in the financial sector
also increased.
The Securities and Exchange Board of India was set up in early 1988 as a non
statutory body under an administrative arrangement. It was given statutory powers in
January 1992 through the enactment of the SEBI Act, 1992 for regulating the
securities market. The two objectives mandated in the SEBI Act are investors
protection and orderly development of the capital market. Under SEBI the whole
working was made transparent so that any illegal working can be controlled when
planned and thus investors can be protected against these scams.
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1.4 INTERNATIONAL SCENARIO
Following the implementation of reforms in the securities industry during the last
decade, The Indian stock market have stood out in the world ranking as well as in thedeveloped and emerging markets. India has a turnover ratio of 94.2%, which is quite
comparable to the other developed markets like US and UK which have turnover
ratios of 129.1% and 141.9% respectively. As per Standard and Poor Fact book India
ranked 17th in terms of market capitalization (18 th in 2004) and 18th in terms of total
volume traded in stock exchange and 20th in term of turnover ratios as on December
2005 (15th in 2004).
The stock markets worldwide have grown in size as well as depth over last one
decade. The turnover of all markets taken together has grown from US $ 29.70 trillion
in 2003 to US $ 47.32 trillion in 2005. It is significant to note that US alone accounted
for about 45.46% of worldwide turnover in 2005. Despite having a large number of
companies listed on its exchange, India accounted for a meager 0.94% in total world
turnover in 2005. The market capitalization of all listed companies taken together
stood at US $ 43.64 trillion in 2005 (US $ 38.90 trillion in 2004). The share of US
worldwide market capitalization decreased from 41.96% as at the end-2004 to 38.95%
in the end-2005, while Indian listed companies accounted for 1.27 percent of total
market capitalization in 2005.
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1.5 INTRODUCTION TO THE METHODOLOGY
1.5 (a) Research Questions
Every research is done basically to answer some questions and same is the reason for
this report. The questions I will try to answer in this research report are:
1. What is stock volatility and what does it indicate?
2. Is there any difference in volatility of a company trading on different indexes
within the same economy?
3. Can this difference in volatility help investors in any way?
1.5 (b) Research Objectives
The objectives of this project were mainly to study the Movements in the prices of
stocks of both the markets and why there is a difference in the movements even when
they are working in the same economy.
1.5 (c) Hypothesis for the Research
The hypothesis for the research is that NSE is more volatile and risky as compared to
BSE.
1.5 (d) Scope of the Study
During the past few years Indian Capital Market has undergone metamorphic reforms.
Every segment of Indian Capital Market viz primary and secondary markets, derivatives,
institutional investment and market intermediation has experienced impact of these
changes. Our market, today, is being recognized as one of the most transparent, efficient
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and clean markets. Several techniques /instruments are used by academicians, policy
makers, practitioners and investors to test the extent of efficiency of the market. In this
research paper, an attempt has been made to analyse distributional characteristics of stock
indices in India and compare the two most important stock markets functioning in India.
Return (Mean), Volatility (Standard Deviation) and Betas are computed for various
indices for different stocks over the same period. These, provide a picture of Indian stock
price movements.
In the recent past there have been perceptions that volatility in the market has gone up.
News items and some clinical research papers also provided figures to evidence this
argument. 20 companies which are common in the both the markets have been analysed
over a period of one year.
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Chapter 2:- LITERATURE REVIEW
Stock prices change everyday by market forces. By this we mean that share prices change
because of supply and demand. If more people want to buy a stock (demand) than sell it
(supply), then the price moves up. Conversely, if more people wanted to sell a stock than
buy it, there would be greater supply than demand, and the price would fall.
Understanding supply and demand is easy. What is difficult to comprehend is what
makes people like a particular stock and dislike another stock. This comes down to
figuring out what news is positive for a company and what news is negative. There are
many answers to this problem and just about any investor you ask has their own ideas and
strategies. That being said, the principal theory is that the price movement of a stockindicates what investors feel a company is worth. Don't equate a company's value with
the stock price. The value of a company is its market capitalization, which is the stock
price multiplied by the number of shares outstanding. To further complicate things, the
price of a stock doesn't only reflect a company's current value--it also reflects the growth
that investors expect in the future. The most important factor that affects the value of a
company is its earnings. Earnings are the profit a company makes, and in the long run no
company can survive without them. It makes sense when you think about it. If a company
never makes money, they aren't going to stay in business. Public companies are required
to report their earnings four times a year (once each quarter). Wall Street watches with
rabid attention at these times, which are referred to as earnings seasons. The reason
behind this is that analysts base their future value of a company on their earnings
projection. If a company's results surprise (are better than expected), the price jumps up.
If a company's results disappoint (are worse than expected), then the price will fall. Of
course, it's not just earnings that can change the sentiment towards a stock (which, in
turn, changes its price). It would be a rather simple world if this were the case.During the
dot-com bubble, for example, dozens of Internet companies rose to have market
capitalizations in the billions of dollars without ever making even the smallest profit. As
we all know, these valuations did not hold, and most all Internet companies saw their
values shrink to a fraction of their highs. Still, the fact that and can change in price
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extremely rapidly. Here are the important things to grasp about this subject: prices did
move that much demonstrates that there are factors other than current earnings that
influence stocks. Investors have developed literally hundreds of these variables, ratios
and indicators. Some you may have already heard of, such as the P/E ratio, while others
are extremely complicated and obscure with names like Chaikin Oscillator or Moving
Average Convergence Divergence (MACD). So, why do stock prices change? The best
answer is that nobody really knows for sure. Some believe that it isn't possible to predict
how stocks will change in price while others think that by drawing charts and looking at
past price movements, you can determine when to buy and sell. The only thing we do
know as a certainty is that stocks are volatile
1 1. At the most fundamental level, supply and demand in the market determine
stock price.
2 2. Price times the number of shares outstanding (market capitalization) is the
value of a company. Comparing just the share price of two companies is
meaningless.
3 3. Theoretically earnings are what affect investors' valuation of a company, but
there are other indicators that investors use to predict stock price. Remember, it is
investors' sentiments, attitudes, and expectations that ultimately affect stock
prices.
In this report, we focus upon one aspect of GARCH models, namely, their ability to
deliver volatilityforecasts. In other words, these models are useful not only for modeling
the historical process of volatility but also in giving us multi-period ahead forecasts.
These forecasts are, of course, of great value in applications to stock return data (portfolio
allocation, dynamic optimization, option pricing etc.). We evaluate the performance of
these models in terms of their ability to give adequate forecasts. One traditional difficulty
in constructing these tests is that the volatility process is inherently unobservable. We
surmount this problem by using a proxy of yearly volatility calculated using daily data.
Since our alternative measure of volatility is essentially model free and is estimated using
higher frequency data, we have more faith in the reliability of these volatility estimates.
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Robustness checks using intraday data suggest that our results are not dependent on our
choice of frequency of data. In other words, simple volatility measures calculated using
high frequency data are as good, if not better, proxies for actual volatility as more
sophisticated measures constructed using GARCH models. This report focuses only on
GARCH models for changing volatility.
There are many theories that try to explain the way stock prices move the way they do.
Unfortunately, there is no one theory that can explain everything. Through this report, an
effort has been made to analyse the Stock volatility between NSE and BSE and an
attempt to understand which market is more volatile and why. Being working in the same
economy, both has different volatility. The most important factor which motivated me to
do the study is the fluctuations in the price of individual stocks, as well as market indices.
It may be useful here to distinguish between the individual stock price fluctuations and
that for market index fluctuations, as the former is more fundamental and implies the
latter, provided most of the stock comprising the index have significant cross
correlation in their price movement. We will, therefore, focus on the behavior of
individual stocks comprising both the stock markets i.e. NSE and BSE for evaluation.
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Chapter 3:- RESEARCH METHODOLOGY
3.1 Research Design
The research design used to conduct the research is Exploratory Research in which
Secondary Data Study is done in which internet, books and some other literatures are
used. The topic needs to analyse the fluctuation in stock prices of selected stocks in NSE
and BSE so that they can be compared to each other for which secondary data is of great
help.
3.2 Data Collection Methodology
The data used to do the research are daily series of sample of 20 companies trading on
both NSE and BSE. Daily returns of these 20 companies is calculated for last one year
and then their beta and volatility is calculated so that we can compare both the index i.e.
NSE and BSE on the same parameter and we could overlook the inconsistencies present
in both the indexs.
The variance is calculated using the GARCH model where variance is calculated using
the formulae:
Where, Ntis the number of trading days in yeartand ritis the return on the ith day of
year t. The second term accounts for the autocorrelation observed in daily returns
(Autocorrelation in daily returns from 01/04/2006 to 31/03/2007). This figure shows aplot of the realized returns and our proxy for the yearly standard deviation which is
converted to daily standard deviation so that it could be set as a standard.
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Clearly volatility shows a substantial time variation. And this is a measure of how
sensitive prices are and how they are priced according to investors sentiments. In other
words volatility is nothing more than investors sentiments towards a particular stock.
One immediate issue that arises is how good a proxy of actual volatility we have. One
should realize that the measures of volatility considered in this paper are sample
estimates ofactualvolatility. We are aware of the sampling error being made in treating
our measure as the benchmark actual volatility. We feel that our measure is a better
proxy for actual volatility for four main reasons.
First, it is well known that estimate of second moment becomes more precise as the
sampling frequency is increased. As first noted by Merton (1980), if an asset follows a
geometric Brownian motion, its volatility can be estimated arbitrarily accurately if the
frequency of sample is high enough. Nelson (1990a) has proved a similar property under
some additional restrictions in models of changing volatility.
Second, various models of changing volatility like stochastic volatility models or
GARCH models are essentially filtering processes that make use of the information
in the entire estimation period to produce volatility estimates at one particularpoint of
time. If the volatility is changing over time, it seems reasonable to assume that an
estimate that relies on only limited sample time would be more true proxy of actual
volatility.
Third, casual observation suggests that in the days where we see widely different returns
are the days where volatility is the highest. Calculating volatility using daily data captures
this aspect of data reasonably well whereas this feature is lost by estimating GARCH
models on daily frequency.
Finally, under the assumption of Gaussian errors, the standard error of our estimate of
variance is 24/(Nt 1). Where,Ntis the total number of observations and is the actual
standard deviation. Assuming a sample estimate of 5% for yearly standard deviation
estimated using 250 days during the year, the 95% confidence interval for standard
deviation can be measured in both the markets. We will show later that it is different in
both the markets.
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Chapter 4:- DATA ANALYSIS AND PRESENTATION
For the research work the sample of 20 companies which are listed on both exchanges
NSE and BSE are considered so that we can overcome the differences such as different
number of companies listed in both the exchanges and this research can be done on a
common basis. Then the weighted average method is used to consider the index as a
whole.
The companies considered for the research are:
1. ACC Ltd.
2. Bajaj Auto Ltd.
3. Cipla Ltd.
4. Dr. Reddys Labs
5. Grasim Industries Ltd.
6. Gujrat Ambuja Cement Ltd.
7. Housing Development Finance Corporation Ltd. (HDFC)
8. HDFC Bank Ltd.
9. Hero Honda Motor Ltd.
10. Hindustan Lever Ltd.
11. Hindalco Industries Ltd.
12. ICICI Bank
13. Infosys Technologies
14. ITC Ltd.
15. Maruti Udyog
16. NTPC17. ONGC
18. Reliance Industries
19. Tata Steel
20. Wipro Ltd.
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MECHANICS OF COMPUTATION OF DATA FOR THIS
CHAPTER
Mechanisms used to conduct the research are explained below:
For the sample conducted for the research we have calculated their average return which
is done as-
Average Return = (Share price of tth day Share price of (t-1)th day)
Share price of (t-1)th day .
N-1
Where, N = Number of days considered
The Beta values for all the 20 companies taken as sample is evaluated by considering the
daily return of the stock and daily return of the index and then calculating their
correlation between them.
Beta j = Covariance jm = j m Corjm
Variance m 2
m
Beta of security j is the ratio of the covariance of the returns of a security, j, and the
market portfolio, m, to the variance of return of the market portfolio.
The variance is calculated using the GARCH model where variance is calculated using
the formulae:
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Where, Ntis the number of trading days in yeartand ritis the return on the ith day of
year t. The second term accounts for the autocorrelation observed in daily returns
(Autocorrelation in daily returns from 01/04/2009 to 31/03/2010). This figure shows a
plot of the realized returns and our proxy for the yearly standard deviation which is
converted to daily standard deviation so that it could be set as a standard.
For the sample of 20 companies the volatility is calculated by this method which results
in an annual figure of volatility which is then divided by (N-1), where, N is the number of
observations by which we get a daily volatility figure. The square root of this value
provides us with the standard deviation of the company.
This standard deviation and beta for the index is calculated as:
Std. Deviation = Standard Deviation of a stock * Market capitalization of the stock
Total market capitalization for the 20 stocks considered
Beta = Beta of a stock * Market capitalization of the stock .
Total market capitalization for the 20 stocks considered
Now, this mechanism is used in the sample of 20 companies-
4.1 ACC Ltd.
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The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 1 below showing the rise
of company share on NSE and BSE during the period from 1st April, 09 to 31st March,10.
Figure 1: Share prices
ACC Ltd.
600
700
800
900
1000
1100
1200
1
Share
pri
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00001696 0.00001654
Beta 1.01000000 1.02000000
Standard Deviation 0.02684214 0.02665482
The Figures 2, 3 and 4 help us to look at these different values in a better way
Figure 2
28
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AVERAGE RETURN
0.00001630
0.00001640
0.00001650
0.00001660
0.00001670
0.00001680
0.00001690
0.00001700
Average Return
Nifty Sensex
Figure 3
BETA
1.00400000
1.00600000
1.00800000
1.01000000
1.01200000
1.01400000
1.01600000
1.01800000
1.02000000
1.02200000
Beta
Nifty Sensex
Figure 4
STANDARD DEVIATION
0.02655000
0.02660000
0.02665000
0.02670000
0.02675000
0.02680000
0.02685000
0.02690000
Standard Deviation
Nifty Sensex
4.2 Bajaj Auto Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 5 below showing the
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rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 5
BAJAJ AUTO LTD.
2200
2300
2400
2500
2600
2700
2800
2900
3000
3100
3200
3300
Share
Pr
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has differentaverage return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00031869) (0.00031587)
Beta 0.90000000 0.93000000
Standard Deviation 0.02420081 0.02428136
The Figures 6, 7 and 8 help us to look at these different values in a better way
Figure 6
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AVERAGE RETURN
(0.00031900)
(0.00031850)
(0.00031800)
(0.00031750)(0.00031700)
(0.00031650)
(0.00031600)
(0.00031550)
(0.00031500)
(0.00031450)
(0.00031400)
Average Return
Nifty Sensex
Figure 7
BETA
0.88000000
0.89000000
0.90000000
0.91000000
0.92000000
0.93000000
0.94000000
Beta
Nifty Sensex
Figure 8
STANDARD DEVIATION
0.02416000
0.02418000
0.02420000
0.02422000
0.02424000
0.02426000
0.02428000
0.02430000
Standard Deviation
Nifty Sensex
4.3 Cipla Ltd.
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The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 9 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 9
CIPLA LTD.
150
250
350
450
550
650
750
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has differentaverage return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00273673) (0.00277935)
Beta 0.77000000 0.80000000
Standard Deviation 0.04739841 0.04766129
The Figures 10, 11 and 12 help us to look at these different values in a better way
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Figure 10
AVERAGE RETURN
(0.00279000)
(0.00278000)
(0.00277000)
(0.00276000)
(0.00275000)
(0.00274000)
(0.00273000)
(0.00272000)
(0.00271000)
Average Return
Nifty Sensex
Figure 11
BETA
0.75000000
0.76000000
0.77000000
0.78000000
0.79000000
0.80000000
0.81000000
Beta
Nifty Sensex
Figure 12
STANDARD DEVIATION
0.04725000
0.04730000
0.04735000
0.04740000
0.04745000
0.04750000
0.04755000
0.04760000
0.04765000
0.04770000
Standard Deviation
Nifty Sensex
4.4 Dr. Reddys Labs
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The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 13 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 13
DR. REDDY'S LABS
600
700
800
900
1000
11001200
1300
1400
1500
1600
1700
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00171880) (0.00172526)
Beta 0.65000000 0.70000000
Standard Deviation 0.03971266 0.03995736
The Figures 14, 15 and 16 help us to look at these different values in a better way
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Figure 14
AVERAGE RETURN
(0.00172600)
(0.00172400)
(0.00172200)
(0.00172000)
(0.00171800)
(0.00171600)
(0.00171400)
Average Return
Nifty Sensex
Figure 15
BETA
0.62000000
0.63000000
0.64000000
0.65000000
0.66000000
0.67000000
0.68000000
0.69000000
0.70000000
0.71000000
Beta
Nifty Sensex
Figure 16
STANDARD DEVIATION
0.03955000
0.03960000
0.03965000
0.03970000
0.03975000
0.03980000
0.03985000
0.03990000
0.03995000
0.04000000
Standard Deviation
Nifty Sensex
4.5 Grasim Industries
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The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 17 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 17
GRASIM INDUASTRIES LTD.
1500
1800
2100
2400
2700
3000
Share
Pri
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different indexand within the same economy.
NSE BSE
Average Return 0.00028278 0.00027530
Beta 1.09000000 1.09000000
Standard Deviation 0.02380949 0.02369550
The Figures 18, 19 and 20 help us to look at these different values in a better way
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Figure 18
AVERAGE RETURN
0.00027000
0.00027200
0.00027400
0.00027600
0.00027800
0.00028000
0.00028200
0.00028400
Average Return
Nifty Sensex
Figure 19
BETA
-
0.20000000
0.40000000
0.60000000
0.80000000
1.00000000
1.20000000
Beta
Nifty Sensex
Figure 20
STANDARD DEVIATION
0.023620000.02364000
0.02366000
0.023680000.02370000
0.02372000
0.023740000.02376000
0.023780000.02380000
0.02382000
Standard Deviation
Nifty Sensex
4.6 Gujrat Ambuja Cement Ltd.
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The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 21 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 21
GUJRAT AMBUJA CEMENT LTD.
80
90
100
110
120
130
140
150
ShareP
rice
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00035559 0.00034889
Beta 0.94000000 0.96000000
Standard Deviation 0.02511837 0.02516034
The Figures 22, 23 and 24 help us to look at these different values in a better way
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Figure 22
AVERAGE RETURN
0.00034400
0.00034600
0.00034800
0.00035000
0.00035200
0.00035400
0.00035600
0.00035800
Average Return
Nifty Sensex
Figure 23
BETA
0.93000000
0.93500000
0.94000000
0.94500000
0.95000000
0.95500000
0.96000000
0.96500000
Beta
Nifty Sensex
Figure 24
STANDARD DEVIATION
0.02509000
0.02510000
0.02511000
0.02512000
0.02513000
0.02514000
0.02515000
0.02516000
0.02517000
Standard Deviation
Nifty Sensex
4.7 HDFC
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The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 25 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 25
HDFC
900
1150
1400
1650
1900
ShareP
ric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00080232 0.00080655
Beta 0.93000000 0.96000000
Standard Deviation 0.02480389 0.02537363
The Figures 26, 27 and 28 help us to look at these different values in a better way
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Figure 26
AVERAGE RETURN
0.00080000
0.00080100
0.00080200
0.00080300
0.00080400
0.00080500
0.00080600
0.00080700
Average Return
Nifty Sensex
Figure 27
BETA
0.91000000
0.92000000
0.93000000
0.94000000
0.95000000
0.96000000
0.97000000
Beta
Nifty Sensex
Figure 28
STANDARD DEVIATION
0.02450000
0.024600000.02470000
0.024800000.02490000
0.02500000
0.025100000.02520000
0.025300000.02540000
0.02550000
Standard Deviation
Nifty Sensex
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4.8 HDFC Bank
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 29 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 29
HDFC BANK
600
700
800
900
1000
1100
1200
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00112133 0.00110269
Beta 0.84000000 0.88000000
Standard Deviation 0.02517856 0.02474716
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The Figures 30, 31 and 32 help us to look at these different values in a better way
Figure 30
AVERAGE RETURN
0.00109000
0.00109500
0.00110000
0.00110500
0.00111000
0.00111500
0.00112000
0.00112500
Average Return
Nifty Sensex
Figure 31
BETA
0.82000000
0.83000000
0.84000000
0.85000000
0.86000000
0.87000000
0.88000000
0.89000000
Beta
Nifty Sensex
Figure 32
STANDARD DEVIATION
0.02450000
0.02460000
0.02470000
0.02480000
0.02490000
0.02500000
0.02510000
0.02520000
0.02530000
Standard Deviation
Nifty Sensex
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4.9 Hero Honda Motors Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 33 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 33
HERO HONDA MOTORS LTD.
600
650
700
750
800
850
900
950
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00082857) (0.00086641)
Beta 0.66000000 0.63000000
Standard Deviation 0.02215251 0.02179340
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The Figures 34, 35 and 36 help us to look at these different values in a better way
Figure 34
AVERAGE RETURN
(0.00087000)
(0.00086000)
(0.00085000)
(0.00084000)
(0.00083000)
(0.00082000)
(0.00081000)
(0.00080000)
Average Return
Nifty Sensex
Figure 35
BETA
0.61000000
0.62000000
0.63000000
0.64000000
0.65000000
0.66000000
0.67000000
Beta
Nifty Sensex
Figure 36
STANDARD DEVIATION
0.02160000
0.02170000
0.02180000
0.02190000
0.02200000
0.02210000
0.02220000
Standard Deviation
Nifty Sensex
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4.10 Hindalco Industries Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 37 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 37
HINDALCO INDUSTRIES LTD.
120
140
160
180
200
220
240
260
Share
Price
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00097217) (0.00099489)
Beta 1.16000000 1.15000000
Standard Deviation 0.02899341 0.02904471
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The Figures 38, 39 and 40 help us to look at these different values in a better way
Figure 38
AVERAGE RETURN
(0.00100000)
(0.00099500)
(0.00099000)
(0.00098500)
(0.00098000)
(0.00097500)
(0.00097000)
(0.00096500)
(0.00096000)
Average Return
Nifty Sensex
Figure 39
BETA
1.14400000
1.14600000
1.14800000
1.15000000
1.15200000
1.15400000
1.15600000
1.15800000
1.16000000
1.16200000
Beta
Nifty Sensex
Figure 40
STANDARD DEVIATION
0.02896000
0.02897000
0.02898000
0.02899000
0.02900000
0.02901000
0.02902000
0.02903000
0.02904000
0.02905000
Standard Deviation
Nifty Sensex
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4.11 Hindustan Lever Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 41 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 41
HINDUSTAN LEVER LTD.
150
180
210
240
270
300
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00096071) (0.00097040)Beta 0.99000000 1.01000000
Standard Deviation 0.02615082 0.02569562
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The Figures 42, 43 and 44 help us to look at these different values in a better way
Figure 42
AVERAGE RETURN
(0.00097200)
(0.00097000)
(0.00096800)
(0.00096600)
(0.00096400)
(0.00096200)
(0.00096000)
(0.00095800)
(0.00095600)
(0.00095400)
Average Return
Nifty Sensex
Figure 43
BETA
0.98000000
0.98500000
0.99000000
0.99500000
1.00000000
1.00500000
1.01000000
1.01500000
Beta
Nifty Sensex
Figure 44
STANDARD DEVIATION
0.02540000
0.02550000
0.02560000
0.025700000.02580000
0.02590000
0.02600000
0.02610000
0.02620000
Standard Deviation
Nifty Sensex
49
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50/73
4.12 ICICI Bank
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 45 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 45
ICICI BANK
400
500
600
700
800
900
1000
1100
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00168260 0.00167544
Beta 0.93000000 0.97000000
Standard Deviation 0.02665270 0.02617329
50
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The Figures 46, 47 and 48 help us to look at these different values in a better way
Figure 46
AVERAGE RETURN
0.00167000
0.00167200
0.00167400
0.00167600
0.00167800
0.00168000
0.00168200
0.00168400
Average Return
Nifty Sensex
Figure 47
BETA
0.91000000
0.92000000
0.93000000
0.94000000
0.95000000
0.96000000
0.97000000
0.98000000
Beta
Nifty Sensex
Figure 48
STANDARD DEVIATION
0.02590000
0.02600000
0.02610000
0.026200000.02630000
0.02640000
0.02650000
0.02660000
0.02670000
Standard Deviation
Nifty Sensex
51
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52/73
4.13 Infosys Technologies
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 49 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 49
INFOSYS TECHNOLOGIES
1500
1700
1900
2100
2300
2500
2700
2900
31003300
3500
1
Share
Pri
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00079026) (0.00080589)
Beta 0.85000000 0.88000000
Standard Deviation 0.03403340 0.03404016
52
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The Figures 50, 51 and 52 help us to look at these different values in a better way
Figure 50
AVERAGE RETURN
(0.00081000)
(0.00080500)
(0.00080000)
(0.00079500)
(0.00079000)
(0.00078500)
(0.00078000)
Average Return
Nifty Sensex
Figure 51
BETA
0.83000000
0.84000000
0.85000000
0.86000000
0.87000000
0.88000000
0.89000000
Beta
Nifty Sensex
Figure 52
STANDARD DEVIATION
0.03403000
0.03403200
0.03403400
0.03403600
0.03403800
0.03404000
0.03404200
Standard Deviation
Nifty Sensex
53
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4.14 ITC Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 53 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 53
ITC LTD.
125
145
165
185
205
225
Share
Pri
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00096186) (0.00089019)
Beta 0.92000000 0.88000000
Standard Deviation 0.02212090 0.02172213
54
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55/73
The Figures 54, 55 and 56 help us to look at these different values in a better way
Figure 54
AVERAGE RETURN
(0.00098000)
(0.00096000)
(0.00094000)
(0.00092000)
(0.00090000)
(0.00088000)
(0.00086000)
(0.00084000)
Average Return
Nifty Sensex
Figure 55
BETA
0.86000000
0.87000000
0.88000000
0.89000000
0.90000000
0.91000000
0.92000000
0.93000000
Beta
Nifty Sensex
Figure 56
STANDARD DEVIATION
0.02150000
0.02160000
0.021700000.02180000
0.02190000
0.02200000
0.02210000
0.02220000
Standard Deviation
Nifty Sensex
55
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4.15 Maruti Udyog Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 57 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 57
MARUTI UDYOG LTD.
600
650
700
750
800
850
900
950
1000
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00009115) (0.00011279)Beta 1.17000000 1.13000000
Standard Deviation 0.02249300 0.02244452
56
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The Figures 58, 59 and 60 help us to look at these different values in a better way
Figure 58
AVERAGE RETURN
(0.00012000)
(0.00010000)
(0.00008000)
(0.00006000)
(0.00004000)
(0.00002000)
-
Average Return
Nifty Sensex
Figure 59
BETA
1.11000000
1.12000000
1.13000000
1.14000000
1.15000000
1.16000000
1.17000000
1.18000000
BetaNifty Sensex
Figure 60
STANDARD DEVIATION
0.02242000
0.02243000
0.02244000
0.02245000
0.022460000.02247000
0.02248000
0.02249000
0.02250000
Standard Deviation
Nifty Sensex
57
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58/73
4.16 NTPC Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 61 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 61
NTPC
90
100
110
120
130
140
150
160
Share
Pri
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00063108 0.00061456Beta 0.98000000 0.70000000
Standard Deviation 0.02222604 0.02198765
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The Figures 62, 62 and 64 help us to look at these different values in a better way
Figure 62
AVERAGE RETURN
0.00060500
0.00061000
0.00061500
0.00062000
0.00062500
0.00063000
0.00063500
Average Return
Nifty Sensex
Figure 63
BETA
-
0.20000000
0.40000000
0.60000000
0.80000000
1.00000000
1.20000000
Beta
Nifty Sensex
Figure 64
STANDARD DEVIATION
0.02185000
0.02190000
0.02195000
0.02200000
0.02205000
0.02210000
0.02215000
0.02220000
0.02225000
Standard Deviation
Nifty Sensex
59
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60/73
4.17 ONGC Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 65 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 65
ONGC
700
800
900
1000
1100
1200
1300
1400
1500
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00111575) (0.00113810)Beta 0.94000000 0.87000000
Standard Deviation 0.02905699 0.02886682
60
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The Figures 66, 67 and 68 help us to look at these different values in a better way
Figure 66
AVERAGE RETURN
(0.00114000)
(0.00113500)
(0.00113000)
(0.00112500)
(0.00112000)
(0.00111500)
(0.00111000)
(0.00110500)
(0.00110000)
Average Return
Nifty Sensex
Figure 67
BETA
0.82000000
0.84000000
0.86000000
0.88000000
0.90000000
0.92000000
0.94000000
0.96000000
Beta
Nifty Sensex
Figure 68
STANDARD DEVIATION
0.02875000
0.02880000
0.02885000
0.02890000
0.02895000
0.02900000
0.02905000
0.02910000
Standard Deviation
Nifty Sensex
61
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62/73
4.18 Reliance Industries Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 69 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 69
RELIANCE INDUSTRIES
800
900
1000
1100
1200
1300
1400
1500
Share
p
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00226592 0.00226863Beta 1.01000000 1.01000000
Standard Deviation 0.02171404 0.02183193
62
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The Figures 70, 71 and 72 help us to look at these different values in a better way
Figure 70
AVERAGE RETURN
0.00226450
0.00226500
0.00226550
0.00226600
0.00226650
0.00226700
0.00226750
0.00226800
0.00226850
0.00226900
Average Return
Nifty Sensex
Figure 71
BETA
-
0.20000000
0.40000000
0.60000000
0.80000000
1.00000000
1.20000000
Beta
Nifty Sensex
Figure 72
STANDARD DEVIATION
0.02165000
0.02170000
0.02175000
0.02180000
0.02185000
Standard Deviation
Nifty Sensex
63
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64/73
4.19 Tata Steel Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 73 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 73
TATA STEEL
350
400
450
500
550
600
650
700
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return (0.00028372) (0.00028588)Beta 1.37000000 1.38000000
Standard Deviation 0.03149845 0.03138281
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The Figures 74, 75 and 76 help us to look at these different values in a better way
Figure 74
AVERAGE RETURN
(0.00028650)
(0.00028600)
(0.00028550)
(0.00028500)
(0.00028450)
(0.00028400)
(0.00028350)
(0.00028300)
(0.00028250)
Average Return
Nifty Sensex
Figure 75
BETA
1.36400000
1.36600000
1.36800000
1.37000000
1.37200000
1.37400000
1.37600000
1.37800000
1.38000000
1.38200000
Beta
Nifty Sensex
Figure 76
STANDARD DEVIATION
0.03130000
0.03135000
0.03140000
0.03145000
0.03150000
0.03155000
Standard Deviation
Nifty Sensex
65
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66/73
4.20 Wipro Ltd.
The company is listed on both the exchanges NSE and BSE but the movements in both
the indices are different this can be clearly seen from the Figure 77 below showing the
rise of company share on NSE and BSE during the period from 1 st April, 09 to 31st
March,10.
Figure 77
WIPRO
350
400
450
500
550
600
650
700
Share
Pric
Nifty Sensex
This, clearly indicate that there is a difference in volatility between NSE and BSE which
can be further proved by the figures mentioned below. The company has different
average return, beta and standard deviation for the same time period in different index
and within the same economy.
NSE BSE
Average Return 0.00032704 0.00032386Beta 1.17000000 1.16000000
Standard Deviation 0.02274228 0.02225064
66
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67/73
The Figures 78, 79 and 80 help us to look at these different values in a better way
Figure 78
AVERAGE RETURN
0.00032200
0.00032300
0.00032400
0.00032500
0.00032600
0.00032700
0.00032800
Average Return
Nifty Sensex
Figure 79
BETA
1.15400000
1.15600000
1.15800000
1.16000000
1.16200000
1.16400000
1.16600000
1.16800000
1.17000000
1.17200000
Beta
Nifty Sensex
Figure 80
STANDARD DEVIATION
0.02200000
0.02210000
0.02220000
0.02230000
0.02240000
0.02250000
0.02260000
0.02270000
0.02280000
Standard Deviation
Nifty Sensex
67
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7/28/2019 Stock Volatility NSE and BSE
69/73
7/28/2019 Stock Volatility NSE and BSE
70/73
Chapter 6:- CONCLUSION
The research was started with a hypothesis that NSE is more volatile and more risky as
compared to BSE, and this is proved from the research done here. Taking 20 sample
companies listed on both indexes i.e. NSE and BSE we tried to overcome all other
differences in the market, as different market capitalization or different number of
companied, and did an analysis on these 20 companies considering their daily return for a
year and then calculated its volatility and Beta values for both the markets.
The research resulted that the hypothesis done by me was positive and my hypothesis that
NSE is more volatile and risky as compared to BSE is true.
Now the important question we need to answer is how it is helpful to the investors and
we came to conclusion that because of these differences in volatility there exist
possibilities of arbitrage between the markets. And this arbitrage can help investors earn a
lot if they follow this volatility. GARCH method itself is a method of forecasting
volatility and by using this method we can estimate how much difference will be there in
both the markets and thus earn by investing in those stocks which show us a higher
difference between the two markets. There is risk involved in both the markets but for
higher returns taking a little higher risk is of no harm.
Thus, we can conclude that NSE is more volatile than BSE and this volatility can help
investors earn substantially through taking advantage of arbitrage.
70
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7. BIBLIOGRAPHY
As this research is based on secondary data many books were used which are listed
below:
1. Indian Financial System by Bharti V. Pathak
2. Financial Markets by Mark Grinblatt
3. Fundamentals of Investments by Gordon J. Alexander, William F. Sharpe.
4. Investment Fables by Aswath Damodaran
5. Capital markets by Frank J. Fabozzi and Franco Modigilani
6. Financial econometrics By Damodar N. Gujarati
Except books I have used many internet sites which are:
1. www.nseindia.com
2. www.bseindia.com
3. www.moneycontrol.com
4. www.capitaline.com
5. www.sify.com
6. www.finance.yahoo.com
7. http://en.wikipedia.org/wiki/Stock_market
8. http://www.investopedia.com/terms/v/volatility.asp
71
http://www.nseindia.com/http://www.bseindia.com/http://www.moneycontrol.com/http://www.capitaline.com/http://www.sify.com/http://www.finance.yahoo.com/http://en.wikipedia.org/wiki/Stock_markethttp://www.investopedia.com/terms/v/volatility.asphttp://www.nseindia.com/http://www.bseindia.com/http://www.moneycontrol.com/http://www.capitaline.com/http://www.sify.com/http://www.finance.yahoo.com/http://en.wikipedia.org/wiki/Stock_markethttp://www.investopedia.com/terms/v/volatility.asp7/28/2019 Stock Volatility NSE and BSE
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8. APPENDIX
1. The Power (Law) of Indian Markets: Analyzing NSE and BSE Trading
Statistics By: Sitabhra Sinha and Raj Kumar Pan, The Institute of Mathematical
Sciences, C. I. T. Campus, Taramani, Chennai - 600 113, India.
2. Predictability of Stock Return Volatility- from GARCH Models By: Amit
Goyal, Anderson Graduate School of Management, UCLA
3. Extreme Value Volatility Estimators and Their Empirical Performance in Indian
Capital Markets By: Ajay Pandey
4. Competition, Liquidity and Volatility- A Comparative Study of Bombay Stock
Exchange and National Stock Exchange, By- Chandrasekhar Krishnamurti,
Division of Banking and Finance, Nanyang Business School, Nanyang
Technological University, Nanyang Avenue, Singapore.
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