Volatility Characteristics of Indian Midcap Index Using GARCH and EGARCH

This paper studies volatility characteristics of the Indian CNX midcap index and contrasts with the large cap Nifty. An EGARCH model is fitted to daily returns for 2010 and is subjected to an out-of-sample back test. The study finds differences in volatility behavior of the indices. The Midcap index has asymmetric response to negative shocks (irrespective of their size). The Nifty reacts asymmetrically only to large negative shocks. The EGARCH fits midcap index better than GARCH in back test. The study has implications for modelling of volatility and option pricing. This is the first study on the Indian midcap index