International Journal For Multidisciplinary Research

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Identifying Financial Bubbles in Selected Indian Sectors: An Empirical Study Using NIFTY Indices

Author(s) Ms. Aashima Singh Rana
Country India
Abstract This study investigates the presence of financial bubbles in the Indian stock market, focusing on the NIFTY 50 and five sectoral indices—NIFTY Auto, NIFTY Bank, NIFTY Financial Services, NIFTY Energy, and NIFTY Pharma—over a 14-year period from August 2011 to March 2025. Utilizing advanced econometric techniques, including Right-Tailed Augmented Dickey-Fuller (RtADF), Rolling ADF (RADF), and Supremum ADF (SADF) tests, the analysis examines 164 monthly return observations to detect speculative bubbles and assesses the impact of sectoral returns on NIFTY 50 returns through multiple linear regression and Granger causality tests. Data, sourced from the National Stock Exchange (NSE) website, reveals that NIFTY Financial Services and NIFTY Auto yielded the highest average returns, while NIFTY Bank exhibited the highest volatility. The results indicate no statistical evidence of speculative bubbles across the selected indices, suggesting that market dynamics were driven by fundamental factors rather than speculative excess, with NIFTY 50 demonstrating the lowest risk and highest risk-adjusted performance.
Despite the robust findings, the study acknowledges limitations, including the use of monthly returns instead of daily log prices, exclusion of macroeconomic variables, and a limited sectoral scope. These gaps highlight the need for future research to incorporate high-frequency data, macroeconomic factors, and additional sectors like IT and FMCG for a comprehensive analysis. The absence of bubbles implies a stable market environment, reinforcing investor confidence and reducing risks associated with bubble bursts. However, the dynamic nature of financial markets necessitates ongoing vigilance to monitor potential future speculative episodes, with recommendations for implementing Generalized SADF tests and machine learning models to enhance real-time bubble detection and predictive accuracy for investors and policymakers.
Keywords Financial Bubbles, NIFTY Indices, Econometric Analysis, Indian Stock Market
Published In Volume 7, Issue 6, November-December 2025
Published On 2025-11-05
DOI https://doi.org/10.36948/ijfmr.2025.v07i06.58578
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