Investigating Volatility Persistence and Leverage Effect in Sectoral Indices of NSE: An Evaluation Using GARCH Models
DOI:
https://doi.org/10.14419/dxmp1372Published
03-12-2025Keywords:
GARCH Models; Sectoral indices; Volatility; Volatility Persistence; Volatility Asymmetry; Leverage EffectAbstract
Investors in the stock market always try to maximise their profit with a minimum risk. Identifying volatility in the stock market will help investors reduce their risk and create a healthy portfolio. A detailed analysis of volatility in the sectoral indices directs investors to the sector's strengths and weaknesses.
This study aims to investigate volatility in sectoral indices of the NSE using GARCH (1,1), GARCH in Mean, and EGARCH Models. Daily closing prices of 11 major sectoral indices, spanning from January 1, 2014, to June 30, 2025, are used for this study. The presence of the ARCH effect with the returns is proved for all sectoral indices using the ARCH-LM test. Our results proved that volatility persistence is present in all sectoral indices. The GARCH-in-Mean model suggests that the increased volatility in the Metal industry and the Nifty PSU Bank sector has the potential to generate high returns. The EGARCH model confirms that the leverage effect is present in all sectoral indices, indicating that bad news has a greater impact on volatility than positive news.
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