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Forecasting Volatility Spillover of Information Technology Sector Stocks in India: An Application of ARMA & GARCH Model

International Journal of Business Analytics and Intelligence

Volume 4 Issue 2

Published: 2016
Author(s) Name: Neha Chhabra Roy, Priyanka Tiwari | Author(s) Affiliation: Assistant Professor, Alliance University, Begaluru, Karnataka, India
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Abstract

Information Technology (IT) is a predominant sector in market over last two decades due to high interdependence of other sectors over this discipline. Investment in this sector is growing with advent of emerging technologies. The research paper aims to portray the real picture in front of investors using forecasting the share prices of Indian IT sector. Considering the importance of the specific sector, this study revolves around forecasting the share prices and volatility of IT sector stocks. Three large cap stocks from the S&P BSE Index are considered based on their market capitalization at the time of selection. Auto regressive moving average (ARMA) is applied to forecast its prices while Generalized Auto Regressive Conditional Heteroscedasticity (GARCH) is use to forecast volatility. The research has been conducted for 3 major IT service companies named Tata Consultancy Service (TCS), Infosys & Tech Mahindra with Monthly data taken of 12 years. It is found that the fore-casted prices of stocks of IT sector are showing an increasing trend and the fore-casted volatility associated with these stocks are high as compared to other sectors. The volatility is highest in Tech Mahindra while least in TCS.

Keywords: Forecasting, Information Technology, Arma, Gaarch, Stock Price

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