The objective of this paper is two-fold. At a broader level, it studies stock returns in India with a focus on the characteristics of returns and the volatility patterns (if any) displayed by them. At a more specific level, based on the characteristics of stock returns that emerge, an attempt has been made to locate an appropriate forecasting tool for the Indian stock market.
In the analysis of market returns, there are evidences of the presence of 'volatility clustering', 'leverage effect' and 'stationarity' in the return series. After modelling the volatility patterns exhibited, the findings suggest the deployment of the GARCH models as suitable forecasting tools for the Indian stock market.
The sample comprises of the 500 companies which constitute the NSE 500 index. The index represented 96.76 per cent of the total market capitalization of the National Stock Exchange (NSE) as in December, 2013. The period of the study is 1999-2013.