Stock Market Volatility, Firm Size and Returns:A Study of Automobile Sector of National Stock Exchange in India

The paper examines the relationship between stock market volatility and returns, volatility clustering, leverage effect and the persistence of volatility for the automobile sector of National Stock Exchange (NSE) in Indian for the financial year 2005-06 to 2013-14. The study further investigates the impact of firm size and volatility on returns. The GARCH-M model is used to examine the volatility clustering and persistence of volatility and the relationship between returns and volatility. The EGARCH model is used to capture the asymmetric effect. A panel regression model is estimated to shows the relationship among firm size, volatility and returns. The study reveals that the volatility in all the automobile firms exhibits the characteristics like volatility clustering, asymmetry effect and persistence of volatility in their daily returns. The study also finds the existence of leverage effect in AL, EL, MS and CNX Auto indicating that the negative shocks or bad news have more impact on volatility than that of positive shocks or good news. The relationship between returns and volatility is statistically significant for EL, HMT, HNM, M&M, MS, SI and TM. The study also finds significant small size firm effect on returns