A study on the Power sector stocks with Nifty index using Granger Causality Test

Author(s) : Zohra Bi, Abdullah Yousuf, Aatika Bi
ISSN : 0974-497
Year : August 2014 | Volume : 8 | Issue : 3/4

Abstract: The study is conducted to understand the risks arising in the securities market sector in Power Sector Companies. The study examines causality between the daily returns of stocks and the daily returns of nifty and finds the relationship between the power sector stocks with the nifty index. The study is analytical and is based on secondary data information. The data for the study consisted of the daily closing prices for a sample of ten power stocks listed on the NSE and the nifty over the period of seven years, from January 1, 2006 through to November 30, 2013. The sample stocks were selected by simple random sampling from the NSE-listed power sector stocks. In the study Granger Causality test is used on the selected industrial securities with the Nifty index using their returns and analyzes the risk involved in investing each company. For most of the stocks, there was bi-directional causality exists from the daily returns of both index and the selected stocks. For KSK and Jai Prakash hydro, there was only uni-directional causality existence, i.e. the feedback from the nifty did not have much impact on these stocks. The study reports that, though market returns is a necessary factor in explaining individual stock returns, it cannot be the only explanatory factor involved. Thus, the security line as represented by the regression equation is inadequate; other factors would need to be introduced in order to explain stock returns more completely.


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