Equity markets volatility dynamics in developed and newly emerging economies: EGARCH-with-skewed-t density approach
Bala Dahiru (audubm@yahoo.co.uk),
Pam Jim (jpwayas@yahoo.com) and
Kalu Nwonyuku (naponnanna@yahoo.com)
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Bala Dahiru: Federal Inland Revenue Service, 20 Sokode Crescent, Zone 5, Abuja, FCT, Nigeria.
Pam Jim: Federal Inland Revenue Service, 20 Sokode Crescent, Zone 5, Abuja, FCT, Nigeria.
Kalu Nwonyuku: Federal Inland Revenue Service, 20 Sokode Crescent, Zone 5, Abuja, FCT, Nigeria.
Economics Bulletin, 2017, vol. 37, issue 4, 2394-2412
Abstract:
We examine the volatility dynamics of four “newly†emerging and four developed stock markets using GARCH-type models and their variants and identify breaks in returns using the ICSS test proposed by Inclan and Tiao (1994). We compare MINT (Mexico, Indonesia, Nigeria and Turkey) emerging markets with those of four developed markets (France, Germany, Japan and USA) using weekly data from January 3, 1994 to March 31, 2014 and for Indonesia from July 1, 1997 to March 31, 2014. The estimates of GARCH, EGARCH (with and without breaks) and EGARCH-with-skewed-t density models are assessed to analyse the impact of variance shifts and distributional assumptions on equity market returns. Results reveal that the incorporation of variance shifts reduces the level of persistence in GARCH models. Stability and fluctuation tests suggest that returns and conditional volatilities in the stock markets have not been stable, especially during periods of financial crises. The paper concludes that EGARCH-with-skewed-t density specification exhibits improved model diagnostics compared to the standard (a)symmetric GARCH models (with Gaussian or Student's t densities) in the context of skewness, leverage and fat tails often present in financial returns.
Keywords: Equity Market Volatility; ICSS; GARCH; Unit Roots; Variance Breaks; MINT; EGARCH-with-skewed-t model (search for similar items in EconPapers)
JEL-codes: C2 G1 (search for similar items in EconPapers)
Date: 2017-10-26
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Persistent link: https://EconPapers.repec.org/RePEc:ebl:ecbull:eb-17-00029
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