Post-colonial Finance

A new variance ratio is proposed in this article that utilises the extreme values of asset prices. On the basis of the specification test, it is documented that there is excess volatility in the Indian stock market, whereas this feature is completely absent in the US. It is also found that such excess volatility is persistent in India in the sense that it gives rise to excessive path dependence. Furthermore, it is shown how such path dependence can be modelled from a theoretical point of view by way of the Binomial Markov Random Walk model.