Investment decisions and stock Market volatility

Financial market volatility can have a wide repercussion on the economy as a whole.

There is clear evidence of the important link between financial market uncertainty and

public confidence. Policy makers therefore rely on market estimates of volatility as a

barometer of the vulnerability of financial markets. Volatility estimation and forecasting

have become a compulsory risk-management exercise for economies and many financial

institutions around the world. Understanding volatility is therefore central to risk

management in an economy. In this paper, volatility in the Indian stock market has been

analyzed. Purpose is to study the stock market for volatility and to find the reasons of

volatility with its links to investment behavior of individual investors. To achieve

objectives of the study the long-time series data on BSE-30 Index and the daily changes

in BSE-30 Index from 1st January 2000 to 1st December 2012 were obtained. Results

showed that according to investors the factor of technical analysis is the most important

in causing turbulences in the stock market .The second most important factor identified

by investors is the family recommendation among investors that result in overall volatile

behavior of the market. According to investors manipulations by the big companies also

play a major role in causing stock market volatility.