Investigating Volatility Persistence and Leverage Effect in Sectoral Indices of NSE: An Evaluation Using GARCH Models

Investors in the stock market always try to maximise their profit with a minimum risk. ‎Identifying volatility in the stock market will help investors reduce their risk and create a ‎healthy portfolio. A detailed analysis of volatility in the sectoral indices directs investors to ‎the sector's strengths and weaknesses.‎ ‎This study aims to investigate volatility in sectoral indices of the NSE using GARCH (1,1), GARCH in Mean, and EGARCH Models. Daily closing prices of 11 major sectoral ‎indices, spanning from January 1, 2014, to June 30, 2025, are used for this study. The ‎presence of the ARCH effect with the returns is proved for all sectoral indices using the ‎ARCH-LM test. Our results proved that volatility persistence is present in all sectoral indices. ‎The GARCH-in-Mean model suggests that the increased volatility in the Metal industry and ‎the Nifty PSU Bank sector has the potential to generate high returns. The EGARCH model ‎confirms that the leverage effect is present in all sectoral indices, indicating that bad news has ‎a greater impact on volatility than positive news‎.