Stock Market Volatility in India

Volatility as a phenomenon as well as a concept remains central to modern financial markets and academic research. The link between volatility and risk has been to some extent elusive, but stock market volatility is not necessarily a bad thing. In fact, fundamentally justified volatility can form the basis for efficient price discovery. In this context volatility dependence that implies predictability is welcomed by traders and medium-term investors. The importance of volatility is widespread in the area of financial economics. Equilibrium prices, obtained from asset pricing models, are affected by changes in volatility, investment management lies upon the mean-variance theory, while derivatives valuation hinges upon reliable volatility forecasts. Portfolio managers, risk arbitrageurs, and corporate treasurers closely watch volatility trends, as changes in prices could have a major impact on their investment and risk management decisions.