Reserach on Stock Market Volatility

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1. Introduction
The proposed topic is “A study on impact of stock market volatility on individual investorsinvestment decisions”. This project would give the understanding of the reasons for the volatility in stock markets and its impact on investment decisions of the individual customers. The study also focuses on the various factors that play role in investment decisions of the individual investors in stock markets.

1.1 Background
Volatility in equity market has become a matter of mutual concern in recent years for investors, regulators and brokers. Stock return volatility hinders economic performance through consumer spending(Kaur, 2002). Stock Return Volatility may also affect business investment spending. Further the extreme volatility could disrupt the smooth functioning of the financial system and lead to structural or regulatory changes. However, increase in volatility per se is not a problem but increased volatility reflects underlying problems in fundamental forces affecting economic activities and expectations about them. In fact the more quickly and accurately prices reflect the available information; the more efficient would be pricing of securities and thereby allocation of resources. A market in which prices fully reflect available information is called “efficient” where share prices fluctuate randomly around their “intrinsic” values. In this project we will find the various parameters those are taken into consideration by individual investors while investing in stock markets and weather stock market volatility have an impact on investment decisions of the individual investors or not.

1.1.1Indian Stock Market
The Indian stock market is represented by two most prominent stock indices, viz., Bombay Stock Exchange’s (BSE) Sensitive Index (Sensex) and NSE’s S&P CNX Nifty (Nifty). The Sensex is generally considered to be the bellwether of the Indian stock market. It is the older and the more often quoted index. However, of late, with the growing popularity of the NSE, due to its moretransparent trading mechanism and lower trading cost, Nifty has come to be considered as an important and broader-based market index (Kaur, 2002). As per SEBI’s Annual Report of 2002-2003 (available at, the BSE and NSE together account for more than 95


per cent of the total business transacted on all the stock exchanges of the country. Additionally, according to the data available on the respective exchange web sites ( and, a major portion (around 75%) of the total market t urnover of the respective stock exchanges is accounted for by the index (Sensex and Nifty) stocks. The Indian Equity market is divided in to two parts Primary market - where the share is first issued in the form of IPO (Initial Public Offering) and after issuing the share it is listed on exchange and share is traded on exchange where shares can be bought and sold this is secondary market. Before 2000 shares was held in Physical form but the main difficulty with Physical shares is method of transaction which is open outcry system and process is not transparent to investor also Physical shares were prone to duplication and fraud. So in 2000 NSE introduced the electronic screen based trading system further the introduction of Dematerialization(Conversion of physical share in to electronic form) and depository(where the electronic form of share is kept) revolutionized the Indian Stock market. Currently there are mainly two Depository (DP) NSDL and CDSL and these DP are like bank of share. Individual/Firm can de al through Broker (who is registered and having membership in Exchanges and Depository) for buying and selling securities. Today NSE outpaced BSE in volume of trade. So, Stock market serves the company by providing company the finance for long term needs a nd for investor an opportunity to park their savings in corporate world and in turn give their hand in Nation's development so stock exchange...