Volatility Forecasting, Market Efficiency and Effect of Recession of SRI Indices

Subrata Roy
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Subrata Roy: Mahatma Gandhi Central University, India

Theoretical and Applied Economics, 2021, vol. XXVIII, issue 2(627), Summer, 259-284

Abstract: This paper seeks to examine the RWH, return characteristics and various asymmetric effects of the daily returns of the DJSI (SRI) indices during pre-recession, recession, postrecession and the whole periods (December 1998 to March 2015). To achieve these objectives RWM, ARCH, GARCH, EGARCH and TARCH models are applied along with these various tests are done. ARCH measure confirms about the presence of volatility clustering. According to GARCH measure significant asymmetric shocks and persistence of conditional volatilities present in the daily returns of the SRI indices during the entire sub periods as well as the whole period. According to the EGARCH measure shows that the returns of the SRI indices are free from leverage effects except for DJSI Korea index where leverage effect exists during the recession period. For volatility forecasting not a single measure is appropriate based on various criterions (RMSE, MAE & MAPE). Only GARCH measure is appropriate during the post-recession period. It is also found that the standardised residuals are i.i.d. Finally, the returns of the SRI indices follow RWH that means the indices are informationally efficient in their weak forms and no one can predict the SRI stock price movements and earn abnormal profits by technical analysis.

Keywords: Market Efficiency; RWH; ARCH; GARCH; EGARCH; TARCH; BDS. (search for similar items in EconPapers)
Date: 2021
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