Asian Journal of Management

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Relationship Between Stock Prices and Financial Crises:A Case Study of Indian Commercial Banks


Affiliations
1 Department of Economics, Central University of Haryana, Mahendergarh, 123031, India
2 Haryana School of Business, GJUST, Hisar, India
     

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Purpose- The purpose of this paper is to empirically examine the stock price behaviour during financial crisis for the banking sector in India. Volatility of stock prices in pre crisis period and post crisis period is also compared. The author(s) identify the significant stock price decline during this period.

Design/Methodology/Approach- To capture the behaviour of stock price and volatility in Indian commercial banks during the financial crisis, GARCH model has been used. Bankex index has been used with daily data of closing stock prices from January 1, 2004 to December 31, 2012.

Findings- The paper provides evidences of high persistence of volatility and significant negative association between stock prices and its volatility in both the sub periods.

ResearchLimitations- The paper is focused on Indian banking sector only, rest parts of the economy is excluded in this analysis.

Practical Implication- Dynamic changes in stock price behaviour during the financial crisis would help the investors, policy makers and academicians to predict stock return behaviour especially for the crashes.

Originality/Value- Majority of research work on volatility and stock price behaviour is carried out in developed economies. This is an exclusive study conducted on emerging market like India especially focused on banking sector.


Keywords

GARCH Model, Stock Prices, Volatility, Financial Crisis, Bankex and Indian Commercial Banks.
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  • Relationship Between Stock Prices and Financial Crises:A Case Study of Indian Commercial Banks

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Authors

Ranjan Aneja
Department of Economics, Central University of Haryana, Mahendergarh, 123031, India
Anita Makkar
Haryana School of Business, GJUST, Hisar, India

Abstract


Purpose- The purpose of this paper is to empirically examine the stock price behaviour during financial crisis for the banking sector in India. Volatility of stock prices in pre crisis period and post crisis period is also compared. The author(s) identify the significant stock price decline during this period.

Design/Methodology/Approach- To capture the behaviour of stock price and volatility in Indian commercial banks during the financial crisis, GARCH model has been used. Bankex index has been used with daily data of closing stock prices from January 1, 2004 to December 31, 2012.

Findings- The paper provides evidences of high persistence of volatility and significant negative association between stock prices and its volatility in both the sub periods.

ResearchLimitations- The paper is focused on Indian banking sector only, rest parts of the economy is excluded in this analysis.

Practical Implication- Dynamic changes in stock price behaviour during the financial crisis would help the investors, policy makers and academicians to predict stock return behaviour especially for the crashes.

Originality/Value- Majority of research work on volatility and stock price behaviour is carried out in developed economies. This is an exclusive study conducted on emerging market like India especially focused on banking sector.


Keywords


GARCH Model, Stock Prices, Volatility, Financial Crisis, Bankex and Indian Commercial Banks.

References