Empirical Analysis of Stock Market Volatility and Macroeconomic Volatility in India

This paper tries to examine the nexus between stock market volatility and macroeconomic volatility in India using monthly data provided by the Reserve Bank of India from April 1991 to April 2016. We employ Diebold and Yilmaz (2012) methodology to study these relationship. A Generalized Vector Autoregression (VAR) based volatility spill over estimation shows that net transmitter of mean spill over to other markets are exchange rate and Sensex while money supply and inflation are the net receiver of mean spill over. The net transmitter of volatility are exchange rate and Sensex, while inflation is the leading net receiver of volatility. This results have important implications for macroeconomic policies and portfolio choice.