Volatility in the Indian Stock market


In modern era, it is undeniable that every person on this planet wishes to be wealthy and rich and a good investment is an indispensable segment of this journey. The investors, policy makers and researchers give a lot of attention towards evaluation of risk while analyzing the stock market. The quality of risk measures depends very much on how well the econometric model captures the behavior of the underlying asset. The main attraction of the stock markets is that they provide entrepreneurs and governments with a means of mobilizing resources directly from investors, as well as from investors offering liquidity. Liquid markets improve the allocation of resources and enhance prospects of long term economic growth. A well-developed stock market can increase savings and provide investment capital at a lower cost by offering financial instruments to savers to diversify their portfolios. By doing so, these markets effectively allocate capital resources to productive investment, which would eventually support economic growth. Risk is a chance for an investment to yield an outcome other than expected.

Moreover, the HNIs (high net worth individuals) use pump and dump strategies, causing substantial fluctuations in the prices to maximize their profits. This scenario leads to unexpected events for the investor and creating panic situations. Real investors invest on the basis of fundamental factors but speculators speculate on short run price changes to make early prediction. It is often difficult to identify the nature of transaction as a hedge or speculative transaction. In general, speculative activities have a major role in destabilizing the stock markets. Volatility due to speculators may take alarming proportions.


NIKHIL GUPTA

B.COM II

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