2016

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Browsing 2016 by Author "Faizan Naqvi"

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    A Comparison of Stock Market volatility
    (UMT,Lahore, 2016-04) Faizan Naqvi
    Purpose: The main purpose of this research is to investigate the differences in volatility of emerging vs developed stock markets to safeguard the interest of small and foreign investors. This study examine the relationship between daily information flow and conditional volatility in developed and emerging economies and to find out whether traded volume is a good proxy for daily information flow. Design/methodology/approach: To achieve the objectives of this research standard method used to analyze the volatility, i.e., TARCH, EGARCH and ARMA model. This research used secondary data of 18 Emerging and 22 developed stock market indices. Daily closing prices and daily traded volume is used as the proxies for conditional volatility & information flow respectively. This study covers the time period from 1990 to 2015. Whilte’s general test and Breusch-Godfrey test is used for Heteroscedasticity and Auto-correlation correspondingly. TARCH and EGARCH both models are estimated under General Error Distribution. Findings: The study concludes that magnitude and direction of shocks are equally important in developed markets but in case of emerging markets magnitude of shock play vital role. Volatility persistence is quite high in both sets of markets but more high in developed stock markets. Asymmetry is uniformly present in all markets considered; leverage effect of bad news has stronger effect in developed markets. Results show positive relationship between volume and volatility also when volume is decomposed into its components, added to variance equation volatility persistence decreases. Research limitations: Risk adjusted returns offered by both emerging and developed economies would also be considered along with volatility analysis to analyze as to which markets are paying more dividends or returns accordingly to risk associated with that particular stock. Practical implications: This research is very useful from investor’s point of view as the risk analysis is done across variety of emerging and developed markets, investor could make a judgment for investment according to his risk appetite. This research also examines the relationship between volume-volatility so it would help the technical and financial analysts to better understand the volatility of different stock market indices while doing investment decisions. ii Originality/value: As far as we know there is no evidence on the volatility comparison sample time span considered to incorporate the major shifts in the economies. Volumevolatility relationship and the decomposition of volume into its components then adding into variance equation resulting in reduced GARCH effect adjoin value. Therefore, this study adds new knowledge to the literature of volatility analysis.