A Markov-Switching Model for Indian Stock Price and Volume. (December 2015)

• Record Type: Journal Article
• Authors: Chaudhuri, Kausik; Kumar, Alok
• Is Part Of: Journal of emerging market finance. Volume 14:Number 3(2015:Sep./Dec.)
• Page Start: 239
• Page End: 257
• Publication Date: 2015-12
• Subjects: Markov-switching model -- impulse response -- India; Banks and banking -- Developing countries -- Periodicals; Financial institutions -- Developing countries -- Periodicals; Securities -- Developing countries -- Periodicals; 332.09172405
• DOI: 10.1177/0972652715607116
• Languages: English
• ISSNs: 0972-6527

Abstract

Using weekly data from the Indian stock market, we examine the relationship between stock price and trading volume. Our framework is Markov Switching-Vector Error Correction Model (MS-VECM). We justify the use of nonlinear model using the Brock, Dechert and Scheinkman (BDS) test and the information criteria. The long-run dynamics are characterised by one cointegrating vector relating the price to trading volume. We find that stock price is weakly exogenous only in the high volatility regime. The MS-VECM with two regimes provides a good characterisation of the Indian stock market and performs well relative to the other linear and nonlinear models. JEL Classification: C32, G12, E32