The study measures the volatility of daily returns in the Indian stock market over the period 1961 to 2005. Volatility is analysed using the combined data set of the Economic Times Index and the S&P CNX Nifty together. The return series observes volatility clustering where tranquil periods of small returns are interspersed with volatility periods of large returns. The GARCH (1, 1) model is estimated and the result reports evidence of time varying volatility. The TARCH (1,1) model is also used to test the asymmetric volatility effect and the result suggests an asymmetry in volatility. The conditional volatility for the combined return series shows a clear evidence of volatility shifting over the period. Although the high price movement started in response to strong economic fundamentals, the real cause for abrupt movement appears to be the imperfection of the market.
