This project examines empirically the impact of major events on market volatility of S&P CNX NIFTY stocks as well as the index during the period of January 2005 – October 2010. For the purpose of this project we have considered dominant player of each sector based on their weightage given on NSE website. This research work is both an event study as well as a study of market volatility in the Indian context. The historical data of stock prices as given on NSE website have been used and alongside a chronological list of major events during this period i.e. January 2005 – October 2010 has been prepared for the purpose of technical analysis. The events, on the basis of their nature and volatility causing capacity have been segregated under the heads given below:

• Budget.
• Securities market related.
• Macroeconomic and political.
• International matters.
• Man made/ Natural Disasters.

The results obtained in the final report can be used to see whether these events cause significant volatility or not and how the stock will react to a similar type of event taken in study which can be useful in allocating trading margins on the stock accordingly to mitigate or avoid potential risk due to volatility of that stock.

Generally, the financial market can be divided into two types of market, that is, Capital market and Money market. Securities market is an ordered capital market where transaction of capital is made easy by means of direct financing via securities as articles of trade. Securities market can be further alienated into a secondary market and primary market.

A stock market or equity market is a public market (a slack set-up of monetary transactions, not a material facility or any distinct unit) where the trading of company shares takes place, these company stock are securities, which are listed on a stock exchange and those which are traded privately.

A significant early incident in the expansion of the stock market in India was the creation of the native share and stock brokers’ association at Mumbai in 1875, the predecessor of the present day Bombay Stock Exchange. This was went after by the creation of exchanges in Ahmedabad in 1894, Kolkata in 1908, and Chennai in 1937. Additional to this, a huge number of ephemeral exchanges came into view primarily in buoyant times to go back into unconsciousness during depressing period afterwards. The BSE and NSE have been recognized as the two leading exchanges and account for about eighty per cent of the equity volume traded in India.

VOLATILITY

Stock Market Volatility is the most feared and respected word in the midst of the investors. Analysts are aware of its ability to outsmart the finest of the conclusions. Volatility is similar to the attractive lady who holds the breath of the investors and enthralls the market. The irregular ups and downs add excitement to the market functioning. Volatility does well to some investors, it works badly to some. When the irritability of the market turn out to be too much to tolerate and too difficult to recognize, the investors shift away from the market to look for greener pastures in some other areas like gold and real estates, etc.

MAJOR EVENTS AND RELATIONSHIP WITH STOCK MARKET MOVEMENTS

Since the purpose of this research project is to study the class of relationship that exists between the stock market and events, so the detailed portrayal of variables taken up in the study and the relation between them has been done with the help of statistical tools used. It basically solves our purpose to represent stock market volatility and to demonstrate that how they are interrelated and interlinked to events at macro level and also the pattern followed by them during the study years.

Budgets

Each year the union budgets affect the stock market as it brings in changes in policies and presents how the government is going to spend money in the upcoming years, which might be favorable for some and unfavorable for other sectors. This can potentially lead to market volatility in that period. In fact, volatility can be seen even before the budget day. This might be due to the pre-budget press leaks and expectations that are already built into the stocks .

Securities market matters

Securities market matters like SEBI policies, FII flows, privatization, etc also affect the stock markets as they have an impact on some or all companies and sectors directly which brings in volatility of stock market.

Macro-economic & Political matters

The relationship between macro economic factors and stock market movements has dominated the academic and practitioners‟ literature since long. Some fundamental macroeconomic variables such as growth rate of the economy, exchange rate, interest rate, industrial output and inflation have been argued to be determinants of stock prices. Given below are examples of individual macroeconomic factors that have an effect on stock prices.

• Economic growth
• Industrial production
• Interest rates
• Inflation
• Exchange rate
• Fiscal policy
• Monetary Policy
• Fuel Prices

Political instability generally propels investors into a selling spree. A fragmented election result usually indicates the formation of an unstable coalition government. Investors perceive this as leading to uncertainty on decisions for any major financial sector reform age