Asymmetric volatility structure of equity returns: Evidence from an emerging market

Muhammad Umar, Nawazish Mirza, Syed Kumail Abbas Rizvi and Mehreen Furqan

The Quarterly Review of Economics and Finance, 2023, vol. 87, issue C, 330-336

Abstract: This study aims to evaluate the volatility structure of equity returns in an emerging market. We test the persistence and asymmetries in the volatility structure of equity returns in the Pakistan stock exchange (PSX) between 2006 and 2020. The volatility dynamics are assessed using multiple symmetric and asymmetric variants of GARCH family models. We also introduce News Impact Curves to analyze the presence of asymmetries in the volatility of the returns. Our results demonstrate that the volatility is persistent only in daily returns but not in weekly and monthly returns. Similarly, asymmetries were observed for daily returns implying that news arriving in the market continuously does impact investors' sentiment and behavior. However, this phenomenon subdues when the period is extended, reflecting that PSX is efficient in semi-strong form. These findings have important implications for asset management, instrument pricing, cost of capital estimations, and portfolio optimization.

Keywords: GARCH; Asymmetric volatility; News impact curves; Equity returns (search for similar items in EconPapers)
JEL-codes: C58 D53 G14 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:87:y:2023:i:c:p:330-336

DOI: 10.1016/j.qref.2021.04.016

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