Stock Volatility NSE and BSE

7/28/2019 Stock Volatility NSE and BSE

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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

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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.

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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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http://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/INRhttp://en.wikipedia.org/wiki/South_Asiahttp://en.wikipedia.org/wiki/Market_capitalizationhttp://en.wikipedia.org/wiki/Crorehttp://en.wikipedia.org/wiki/INRhttp://en.wikipedia.org/wiki/South_Asia


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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.

22


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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.

23


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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.

24


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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:

26


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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

1 Apr 09 31 May 10


29/73

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 indices are different this can be clearly seen from the Figure 5 below showing the

29


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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


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


NSE BSE

Average Return (0.00031869) (0.00031587)

Beta 0.90000000 0.93000000



Figure 6

30


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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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March,10.

Figure 9

CIPLA LTD.

150

250

350

450

550

650

750

Share

Pric

Nifty Sensex


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


NSE BSE

Average Return (0.00273673) (0.00277935)

Beta 0.77000000 0.80000000



32


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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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March,10.

Figure 13

DR. REDDY'S LABS

600

700

800

900

1000

11001200

1300

1400

1500

1600

1700

Share

Pric

Nifty Sensex





NSE BSE

Average Return (0.00171880) (0.00172526)

Beta 0.65000000 0.70000000



34


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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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March,10.

Figure 17

GRASIM INDUASTRIES LTD.

1500

1800

2100

2400

2700

3000

Share

Pri

Nifty Sensex



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



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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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March,10.

Figure 21

GUJRAT AMBUJA CEMENT LTD.

80

90

100

110

120

130

140

150

ShareP

rice

Nifty Sensex





NSE BSE

Average Return 0.00035559 0.00034889

Beta 0.94000000 0.96000000



38


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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

39


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March,10.

Figure 25

HDFC

900

1150

1400

1650

1900

ShareP

ric

Nifty Sensex





NSE BSE

Average Return 0.00080232 0.00080655

Beta 0.93000000 0.96000000



40


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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

41


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4.8 HDFC Bank




March,10.

Figure 29

HDFC BANK

600

700

800

900

1000

1100

1200

Share

Pric

Nifty Sensex





NSE BSE

Average Return 0.00112133 0.00110269

Beta 0.84000000 0.88000000


42


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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

43


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4.9 Hero Honda Motors Ltd.




March,10.

Figure 33

HERO HONDA MOTORS LTD.

600

650

700

750

800

850

900

950

Share

Pric

Nifty Sensex





NSE BSE

Average Return (0.00082857) (0.00086641)

Beta 0.66000000 0.63000000


44


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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

45


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4.10 Hindalco Industries Ltd.




March,10.

Figure 37

HINDALCO INDUSTRIES LTD.

120

140

160

180

200

220

240

260

Share

Price

Nifty Sensex





NSE BSE

Average Return (0.00097217) (0.00099489)

Beta 1.16000000 1.15000000


46


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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

47


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4.11 Hindustan Lever Ltd.




March,10.

Figure 41

HINDUSTAN LEVER LTD.

150

180

210

240

270

300

Share

Pric

Nifty Sensex





NSE BSE

Average Return (0.00096071) (0.00097040)Beta 0.99000000 1.01000000


48


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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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4.12 ICICI Bank




March,10.

Figure 45

ICICI BANK

400

500

600

700

800

900

1000

1100

Share

Pric

Nifty Sensex





NSE BSE

Average Return 0.00168260 0.00167544

Beta 0.93000000 0.97000000


50


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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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4.13 Infosys Technologies




March,10.

Figure 49

INFOSYS TECHNOLOGIES

1500

1700

1900

2100

2300

2500

2700

2900

31003300

3500

1

Share

Pri

Nifty Sensex





NSE BSE

Average Return (0.00079026) (0.00080589)

Beta 0.85000000 0.88000000


52


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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.




March,10.

Figure 53

ITC LTD.

125

145

165

185

205

225

Share

Pri

Nifty Sensex





NSE BSE

Average Return (0.00096186) (0.00089019)

Beta 0.92000000 0.88000000


54


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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.




March,10.

Figure 57

MARUTI UDYOG LTD.

600

650

700

750

800

850

900

950

1000

Share

Pric

Nifty Sensex





NSE BSE



56


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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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4.16 NTPC Ltd.




March,10.

Figure 61

NTPC

90

100

110

120

130

140

150

160

Share

Pri

Nifty Sensex





NSE BSE

Average Return 0.00063108 0.00061456Beta 0.98000000 0.70000000


58


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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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4.17 ONGC Ltd.




March,10.

Figure 65

ONGC

700

800

900

1000

1100

1200

1300

1400

1500

Share

Pric

Nifty Sensex





NSE BSE



60


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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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4.18 Reliance Industries Ltd.




March,10.

Figure 69

RELIANCE INDUSTRIES

800

900

1000

1100

1200

1300

1400

1500

Share

p

Nifty Sensex





NSE BSE



62


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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

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4.19 Tata Steel Ltd.




March,10.

Figure 73

TATA STEEL

350

400

450

500

550

600

650

700

Share

Pric

Nifty Sensex





NSE BSE



64


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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

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4.20 Wipro Ltd.




March,10.

Figure 77

WIPRO

350

400

450

500

550

600

650

700

Share

Pric

Nifty Sensex





NSE BSE



66


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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

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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.

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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

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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.asp


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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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Stock Volatility NSE and BSE

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