Brexit Effect on the Volatility of Indian Banking Stock Returns: Some Evidence

The effect of Brexit was hard on the Indian economy affecting many industries, especially the banking sector. This paper empirically analyzes the effect of Brexit on Nifty index returns and two sectoral bank indices returns (includes both public and private sector banks). The time series data of closing prices of CNX Nifty and two sectoral bank indices were taken for a period of 247 days pre- and post-Brexit. The analysis of the data is based on 493 observations using ARCH and GARCH(1,1) model which is tested on all the three distributions-Normal, Student's-t and Generalized Error Distribution (GED) and considered normal distribution results in detail. The results of Ljung-Box test indicate absence of serial correlation and results of ARCH(LM) test indicate absence of ARCH effect, though histogram normality test indicates that residuals are not normally distributed. The test results conclude that there is a significant impact due to Brexit on the stock returns of the Indian banking sector.