Back to normal? A study of the behaviour of volatility in the Indian stock market

We study the behaviour of volatility of the Indian stock market and the impact of the global financial crisis of 2008 on the stock market using data on daily returns of the Nifty index. We make our point by proposing a new statistic called the Vol Ratio, which allows us to infer the behaviour of the volatility of volatility at various horizons. We observe that the volatility of volatility had been rapidly dying down prior to the global financial crisis and that subsequently it has become persistent or takes a very long time to die down in the Nifty index. Keywords: Volatility of volatility, Long memory, Structural change, Mixture of distribution hypothesi