Investigating Volatility Dynamics of the Portugal Stock Market using FIGARCH Models

Santosh Kumar, Bharat Kumar Meher, Ramona Birau, Abhishek Anand and Mircea Laurentiu Simion
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Santosh Kumar: Department of Commerce, D. S. College, Katihar, Bihar, India
Bharat Kumar Meher: PG Department of Commerce, Purnea University, Purnia, Bihar, India
Ramona Birau: Faculty of Economic Science, University Constantin Brancusi, Tg-Jiu, Romania
Abhishek Anand: PG Department of Economics, Purnea University, Purnia, Bihar, India
Mircea Laurentiu Simion: University of Craiova, Doctoral School of Economic Sciences, Craiova, Romania

Economics and Applied Informatics, 2023, issue 3, 39-45

Abstract: The act of modeling and forecasting stock market volatility has become essential to risk management practice; it has become one of the most prevalent subjects in financial econometrics and has been mainly and continuously used in the valuation of financial assets and the Value at Risk, as well as the pricing of options and derivatives. The purpose of this paper is to contrast the FIGARCH model in the prospect of establishing the best algorithm to forecast PSI 20 index (PSI stands for Portuguese Stock Index). This study analyzed PSI 20 index to identify the behavior of the Portugal stock market in terms of volatility and then evaluated the forecasting ability of GARCH family models using Portugal PSI 20 index sample data for the long period from May 2010 - August 2023 (which is more than 13 years in daily data). There are 3396 daily observations. The results indicated that the PSI 20 index’s volatility is asymmetric. The present empirical investigation also seeks to illustrate the potential for investment returns as well as the associated risk. Our findings may have implications for risk management in Portugal, as well as a deeper understanding of the PSI-20 Portugal stock market volatility dynamics, given the scarcity of prior such studies.

Keywords: volatility spillovers; FIGARCH models; uncertainty; risk; stock index; risk management; investment (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ddj:fseeai:y:2023:i:3:p:39-45

DOI: 10.35219/eai15840409360

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