Measuring Volatility Persistence and Asymmetric Effects Around Index Rebalancing of Nifty Indices

This paper examines the time-varying volatility behavior of the stocks that are added to or deleted from the major indices (Nifty 50 and Nifty Next 50) of the National Stock Exchange of India around the event of index rebalancing. The best fit asymmetric panel GJR-GARCH model estimates suggest that volatility persistence is relatively higher for the stocks added to a prominent benchmark index compared to the stocks deleted from such an index. On the contrary, the stocks deleted from a prominent benchmark index are exposed to a higher degree of volatility asymmetry than the stocks added. Our findings have implications on traders, asset managers, exchange managers, regulators and analysts.