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Testing Volatility Asymmetry in Istanbul Stock Exchange

Cem Payaslıoğlu

Istanbul Stock Exchange Review, 2001, vol. 5, issue 18, 1-12

Abstract: In this paper three different models of daily stock return volatility in the Istanbul Stock Exchange (ISE) are estimated and compared. The mean model is represented by stock return variable predicted by a MA (1) term, the day-of-the week (Monday) dummy and the risk term which is the time-varying conditional variance with three alternative specifications: These are standard garch-m (1,1), egarch-m (1,1) and tgarch-m (1,1) models. The latter two incorporate leverage effect into the model. Choice of the appropriate volatility model is determined by inspecting level and squares of the standardized residuals. In addition to the traditional model selection criteria diagnostic tests of Engle and Ng (1993) paper are also utilized. Estimation results revealed that 1) the asymmetry component in the leverage models are not significant. 2) Portmanteau statistics did not discriminate among the models. 3) All models passed the diagnostic tests successfully. These findings point to the necessity of further research with special consideration of other garch extensions in particular: t-distributed versions as well as non-parametric alternatives need to be studied.

Date: 2001
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