Review of Professional Management

Evaluating the Linkage Between the Market Mood Index and the Indian Stock Market: Evidence Based on ARDL Bounds Testing and DCC-GARCH

Animesh Bhattacharjee¹, Joy Das² and Sunil Kumar³

First Published 9 Dec 2024. https://doi.org/10.1177/09728686241298758

Article Information

Corresponding Author:

Animesh Bhattacharjee, The Techno India University Tripura, Maheshkhola, Tripura 799003, India.
Email: bhatt.ani725@gmail.com

¹The Techno India University Tripura, Maheshkhola, Tripura, India
²Department of Commerce, Nagaland University, Kohima Campus Nagaland, India
³The ICFAI University Tripura, Kamalghat, Tripura, India

Creative Commons Non Commercial CC BY-NC: This article is distributed under the terms of the Creative Commons Attribution-NonCommercial 4.0 License (http://www.creativecommons.org/licenses/by-nc/4.0/) which permits non-Commercial use, reproduction and distribution of the work without further permission provided the original work is attributed.

Abstract

The market mood index is a novel sentiment indicator for the Indian stock market, designed to assess the overall mood within the market. This tool purportedly enables investors to become aware of their emotional state and predispositions that may impact their decision-making processes. Given the context, this study aims to explore the relationship between the market mood index and the Indian stock market index in order to verify the effectiveness of the index. The study used data from March 2012 to May 2023. Various analytical techniques are utilised for this purpose, such as unit root tests, cointegration tests, pair-wise Granger causality tests and the DCC-GARCH approach. The results indicate that the Indian stock market and the market mood index are cointegrated in the long term, suggesting a sustained connection between them. Additionally, a feedback mechanism between the variables is apparent. The GARCH analysis confirms the presence of volatility transmission from the market mood index to the Indian stock market in both the long and short term. Furthermore, the DCC model reveals the changing correlation of volatility between the market mood index and the Indian stock market. Trading tactics should be formulated with the association between the two variables in mind. It can be concluded that the studied index, developed by TickerTape, shows good association with the market index suggesting being a good investment indicator.

Keywords

India, mood index, stock market, ARDL, volatility

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