Search

With the information and communication technology revolution, the global economy is transforming from a low productive, manufacture based ‘old’ economy to a knowledge based, service oriented and highly productive ‘new’ economy. In this new era, composition of stock market has changed significantly with the new economy sector adding values to the stock markets. This article inquires whether this is the initiation of a new era of changed stock price behaviour at least in the context of the new economy stocks that characterizes all the financial markets experiencing e-revolution irrespective of their level of development. It confirms a special characteristic of new economy stocks that holds across countries.

This paper considers the embedded dynamics of conditional volatility in five selected exchange rates vis-à-vis Indian Rupee. Specifically, it explores the possible asymmetric response of volatility towards good and bad news and inquires whether it is sensitive to breaks in volatility. Using a suitable GARCH family model no asymmetric response of volatility is found when structural breaks were ignored. However, once the breaks in volatility are incorporated, significant asymmetric volatility response and leverage effects could be detected in all five selected exchange rates. Leverage effects have been strong in the years following the currency crisis of 1997-98, for four out of the five exchange rates. The same phenomenon recurs during the recent recovery after the financial crisis of 2007-08. Thus, during recovery, with the shocks of crisis still in the mind of the investors, bad news tends to exert greater impact on volatility than the good ones.