Inter-market Volatility Transmission between Indices and Bonds in Indian Market

Abstract

Financial markets has a widespread reach across globes and is subject to liquidity risk due to volatility in the market. This research paper examines the interliquidity between market indices, specifically focusing on BSE-Sensex and NSE-Nifty and Bond market. We aim to explore the volatility dynamics and predictability of these markets using advanced econometric models, including ARCH, GARCH, and their extensions. The study utilizes a 5-year dataset (2019 to 2024) comprising daily exchange rates for Bonds and corresponding index prices (NIFTY and SENSEX). We tried to analyse the intermarket volatility and its spillover effect.   Through detailed statistical analysis and model estimations, we investigate the relationship between currency and index volatility, the asymmetric behaviour of volatility, and the contagion effects between these financial markets.