Wavelet Analysis of NIFTY 50: Unveiling Multiresolution Structures

The study applies wavelet analysis to the NIFTY 50 index, using the Overlap MultiResolution Analysis (OMRA) to reveal multi-resolution structures within the Indian equity market. Covering the period from April 2, 2019, to July 31, 2024, the analysis decomposes the index into different frequency components, capturing both short-term fluctuations and long-term trends. Results show that high-frequency components contribute significantly to market volatility, while lower-frequency components demonstrate stable growth patterns. The Augmented Dickey-Fuller (ADF) test confirms the stationarity of the index, supporting the reliability of the wavelet-based findings. Noise reduction through wavelet thresholding enhances the clarity of market trends, and outlier detection identifies significant deviations linked to major market events. These insights enhance the understanding of market dynamics, aiding investors in making informed decisions. Integrating these findings with behavioural finance theories provides a deeper understanding of how market movements are influenced by investor psychology, especially during periods of volatility.