Modelling Volatility in the Indian Bullion Market: An EGARCH Approach

Abstract

The volatility characteristics of the Indian bullion market are examined in this study utilizing monthly statistics from April 2000 to March 2024, with a focus on gold, silver, platinum, and palladium. For investors, legislators, and researchers working on risk management, market regulation, and portfolio optimization, volatility a crucial indicator of market risk is essential. Bullion return clustering, persistence, and asymmetry are captured by the study using the GARCH (1,1) and EGARCH (1,1) models. In addition to highlighting variations in mean, dispersion, skewness, and kurtosis among metals, descriptive statistics validate the data's stationarity using the Augmented Dickey-Fuller test. All markets show considerable volatility clustering, according to GARCH data, with silver showing the strongest persistence (α + β = 0.91), suggesting that shocks diminish over time. EGARCH studies reveal significant asymmetric effects in gold and silver, where positive shocks result in greater volatility than negative shocks, whereas platinum and palladium exhibit symmetric volatility patterns. The large persistence coefficients (β) of all metals show that past shocks have a significant influence on future volatility. These findings highlight the need of accounting for asymmetric volatility when modelling bullion prices and show that gold and silver require more thought when it comes to risk management and the creation of investment strategies. By providing the first EGARCH-based analysis of the Indian bullion market, the study contributes to the literature by illuminating market behaviour, risk mitigation, and investment strategy. In order to manage financial risk and comprehend price dynamics in the Indian bullion market, traders, investors, and policymakers can benefit from the findings.