Effect of Structural Breaks on Volatility Regime: Lessons from Leading European and Indian Indices

Abstract

Stock market volatility has become a very prominent area of research during the last few decades several authors have come out with path breaking studies in this area which has helped both the academicians as well as practitioners in the market. But just studying the long term volatility does not serve the purpose as the environment in the market is so dynamic with shocks appearing at regular intervals. This paper is an attempt to understand the effect of structural breaks on the volatility persistence in the stock markets over the period of time. The study has been conducted on the top 3 European indices, CAC 40, FTSE and DAX and the Indian market ie., Nifty 50 of NSE. For the purpose of this study the time period for which the data has been collected is from April, 2000 to March, 2020. The study concludes that although there is volatility persistence even with structural breaks but it diminishes to an extent due to it.