The present study is an attempt to examine the dynamic impact of crude oil price variations in the international market on the Indian stock market volatility. For the purpose, the study uses crude oil monthly price expressed in dollar per barrel, Bombay Stock Exchange (BSE)-listed index BSE Sensex and National Stock Exchange (NSE)-listed CNX Nifty prices for the period from January 2001 to December 2014. GARCH (1,1) model with net crude oil price change as exogenous variable is used to estimate the impact of net oil price change in international market on the conditional volatilities of both the indices. The findings report that net oil price change has a significant impact upon the conditional volatility of both the indices. These findings show that investors redesign their portfolios in response to crude oil price variations in the international market. They can use crude oil price as an important exogenous variable in forecasting models of stock returns and risk in the Indian stock market.
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