Trading Effect Emerging Stock Markets Risks-Return Volatility Dynamics and Enterprises Economic Exposure

Faisal Khan (), Melati Ahmad Anuar (), Lim Guan Choo () and Mohammad Tahir ()

Journal Transition Studies Review, 2014, vol. 21, issue 1, 91-112

Abstract: While investigating the role of trading effect in detecting the risks-return tradeoff, various volatility dynamics and macroeconomic exposure of firm returns, this research study employs monthly data from Pakistani stock market for the period from 1998 to 2012. For this purpose, three generalized autoregressive conditional heteroskedasticity models were func- tioned: GARCH-M for risks-return tradeoff, GARCH (1, 1) for capturing different volatility dynamics and EGARCH for asymmetric and leverage effect.This study rests on the follow- ing outcomes. Firstly, we unravel that trading effect is flag rising in the debate of risks-return tradeoff.Secondly, in the course of exploring whether the firm trading nature matters from the context of asymmetry and leverage effect, we find that it is certainly the case.Thirdly, trading effect holds considerable role in determining various volatility dynamics. Finally, we expose that macroeconomic variables affect stock returns differently depending upon firm trading nature, hence signifying the role of trading effect.

Keywords: Trading effect; Macroeconomic exposure; Volatility dynamic and Risks-return tradeoff (search for similar items in EconPapers)
Date: 2014
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