Abrupt Changes in Volatility: Evidence from TEPIX Index in Tehran Stock Exchange

Mansour Khalili Araghi and Majid Mirzaee Ghazani
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Mansour Khalili Araghi: Faculty of Economics, University of Tehran, Iran.
Majid Mirzaee Ghazani: Faculty of Economics, University of Tehran, Iran.

Iranian Economic Review (IER), 2015, vol. 19, issue 3, 377-393

Abstract: In this paper, we have examined abrupt changes in volatility of TEPIX index in Tehran stock exchange during August 23, 2010 to June 12, 2014. Applying the iterated cumulative sum of squares (ICSS) algorithm proposed by Inclan and Tiao (1994) and the modified version of this algorithm consisting Kappa 1 and Kappa 2 test statistics developed by Sansó et al. (2004), we have specified that the detection of abrupt changes are mainly explained by local economic and political factors and probably they are behind those changes. This finding is in line with that of Aggarwal et al. (1999) who discovered that countryspecific factors play a key role in determining those sudden shifts in financial markets. In addition, the results of this study ratify the findings of the previous ones suggesting that, when the abrupt changes are embedded into standard GARCH models, the estimated persistence of volatility is decreased significantly.

Keywords: Stock Return Volatility; Volatility Persistence; ICSS Algorithm; GARCH Models. (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eut:journl:v:19:y:2015:i:3:p:377

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