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Volatility Clustering, Leverage Effects and Risk-Return Tradeoff in the Selected Stock Markets in the CEE Countries

Krzysztof Drachal ()
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Krzysztof Drachal: Faculty of Economic Sciences, University of Warsaw, ul. D³uga 44/50, 00-241, Warszawa, Poland.

Journal for Economic Forecasting, 2017, issue 3, 37-53

Abstract: This research is focused on volatility and leverage effects in emerging markets of widely understood region of Central and Eastern Europe (i.e., for example, Russia is included in the analysed sample). The considered period covers the years 2005-2015. Methodology is based on generalized autoregressive conditional heteroscedastic models (GARCH). In particular, GARCH-M and asymmetric T-GARCH, E-GARCH, GJR-GARCH and APARCH models with generalized error distribution are estimated and discussed. If the currents finding are consistent with some of the previous papers, there are still also some outcomes inconsistent with other researches. Herein, also stability tests are performed – a problem not often found in reports from GARCH analysis of CEE. The results show that GARCH-M, TGARCH and E-GARCH are the best models with respect to passing diagnostic tests. Moreover, current findings strongly support the hypothesis of the presence of leverage effect or negative risk-return trade-off in certain CEE countries. The assumption of generalised error distributions occurs to be reasonable for the majority of the analysed countries.

Keywords: emerging markets; GARCH; stock returns (search for similar items in EconPapers)
JEL-codes: C22 G11 G17 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:rjr:romjef:v::y:2017:i:3:p:37-53