Empirical Study Estimating Volatility Dynamics of Stock Returns of Banks in India

The major purpose of this research exercise is to assess the volatility dynamics of the stock returns of the banks of India and to determine the factor which influence and explains the stock returns. For this the two important methodologies are applied, for understanding the sensitivity of stock returns, GARCH (1,1) model is used and for determining the risk factor under multi index model, we propose VAR or VECM models depending on the existence of long run equilibrium among the data series. The empirical exercise suggests that in case of banking companies stock returns are highly persistent and lagged returns have a significant impact on the current year's stock returns