Modelling and Forecasting Volatility in Indian Banking Industry through Stock Indices: A Pre and Post-Merger Approach

Indian Banking Stock markets are considered to be highly volatile. This study investigates the volatility dynamics of the Indian banking sector by analysing the Bank Nifty index during two periods—pre-merger (2016–2020) and post-merger (2020–2024). The objective is to understand the impact of structural banking reforms on stock price volatility and investor behaviour. Daily closing prices of Bank Nifty were used. The study applies GJR-GARCH (1,1) models to estimate volatility. Volatility clustering and asymmetric responses to shocks were also analysed. Results indicate that post-merger volatility is more persistent, with stronger responses to shocks. The findings suggest heightened market sensitivity and investor reaction to structural changes in banking. The approach can be extended to other indices or sectors affected by policy reforms. Including macroeconomic indicators may enhance forecasting performance. The models aid investors and risk managers in decision-making. The study highlights the need for asymmetric models in evolving markets. The Managerial insights help banking executives anticipate market responses to reforms. Stable banking markets support inclusive economic growth. The study is limited to Bank Nifty and does not incorporate firm-specific or macroeconomic variables.