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For each country, we begin our analysis on January 1 st, 1980, or on the first date for which CEIC
data is available, whichever comes later. Journal of Pharmaceutical and BioTech Industry (JPBI).
This literature aims to identify the volatility clustering and leverage effect caused to NSE NIFTY 50
index. The idea of volatility clustering which implies that, “large changes in volatility tend to be
followed by large changes, of either sign, and small changes in volatility tend to be followed by
small changes“, was first documented by Mandelbrot (1963) and later on it was further elaborated by
Engle (1982) and Bollerslev (1986) with the introduction of Autoregressive Conditional
heteroscedasticity (ARCH) and Generalised Autoregressive Conditional heteroscedasticity
(GARCH) models. For the full sample, the coefficient of MONDUM it in model (1) is ? 0.066%,
significant at 1% level, meaning that the weekend effect does exist around the world. Journal of
Cardiovascular Development and Disease (JCDD). PMON it is an interaction term of a put option
dummy (1 if the market allows the practice of put options and 0 otherwise) and the MONDUM it 7.
More volatile underlying assets will translate to higher options premiums because with volatility there
is a greater probability that the options will end up in-the-money at expiration. This questions still
needs more empirical evidence to decide about their usefulness. Reports on the volatility persistence
of the various industry sectors and identifies which industries have high and low persistence. While
variance captures the dispersion of returns around the mean of an asset in general, volatility is a
measure of that variance bounded by a specific period of time. The everyday price changes will
occur on stock index futures and options. When there is a rise in historical volatility, a security's price
will also move more than normal. So the risk averse investors can invest in IT, auto and Realty
sectors by avoiding bank and FMCG sectors stocks where volatility persist for a longer duration.
One of the drawbacks of symmetric GARCH models is that they can’t adjust to response of
volatility to positive and negative shocks. Meanwhile, emotions like fear and greed, which can
become amplified in volatility markets, can undermine your long-term strategy. This is because over
the long run, stock markets tend to rise. Most of the previous empirical studies attempted to study the
trade-off between expected. We test the Chen and Singal (2003) hypothesis that speculative short
sellers add to the selling pressure on Mondays, and hence add to the weekend effect, by examining
evidence from 60 market indices. The asymmetric response of volatility to the news would connote
that the adverse shock (news) would have a greater impact on volatility than a favourable shock
(news), indicating that the sign of the news matters when a new flow of information drives
volatility. The daily data was considered from the period January 1999 to January 2014 GARCH
model Result revealed absence of any spillover effect of volatility across Indian and Chinese stock
markets. To answer this question, we kept only the 37 indices that have data before 1995, and re-
performed all the above regressions on them alone. It is well known that stock returns for unhedged
short positions are theoretically unbounded. In other words, volatility appears to arise in bunches.
Hindmarch et al. (1984) find a weekend effect in the Canadian market. This volatility increases the
uncertainty and risk of the stock market and is detrimental to the normal operation of the stock
market. A Suitable Volatility Measure in Indian Stock Market. Since these providers may collect
personal data like your IP address we allow you to block them here. The main purpose of this study
is to examine the dynamics of volatility in these five Sectoral indices. Measuring the stock market
volatility is an incredibly complex job for researchers.
Mukherjee and Mishra (2010) investigate into both contemporaneous and the lagged (with a lag of 1
day) intraday as well as overnight information spillover between 12 stock exchanges chosen from
Asian region representing both developed and emerging markets of these regions. It is well known
that stock returns for unhedged short positions are theoretically unbounded. Previous Article in
Journal Specifying the Unitary Evolution of a Qudit for a General Nonstationary Hamiltonian via the
Generalized Gell-Mann Representation. Condoyanni et al. (1989)find significantly negative Monday
or Tuesday returns in a study including seven developed markets. If we talk about agricultural prices,
they tend to decrease during the harvesting season and an increment in prices of commodities is
observed when the sowing season starts. Conversely, a stock with a beta of.9 has historically moved
90% for every 100% move in the underlying index. The Data We obtained daily index data from the
CEIC Daily Database. From the empirical result it appears that news asymmetry and leverage effect
are present in the market. The keywords that were too broad or likely to be recognized in literature-
related keywords with other research areas are specified below. A multivariate model would create a
more dependable model than separate univariate models. Additionally, few researchers have used
multivariate GARCH model statistical techniques for analyzing market volatility and returns to show
that a more accurate and better results can be found by multivariate GARCH family models. Funding
This research received no external funding. This makes the future profitability of a wide swath of
companies more predictable and, thus, less volatile, according to researchers Gustavo S. Stock
Market Volatility and Return Analysis: A Systematic Literature Review. First, empirical research on
the heteroscedastic character of stock returns volatility is examined. Stock Market is a hub where
facilities are provided to the investors to purchase and sell their Shares, Bonds and Debenture etc.
Additionally, the list of affiliation criteria in Table 2, which is formed on discussions of the authors,
with the summaries of all research papers were independently checked in a blind system method.
Note that from the first issue of 2016, this journal uses article numbers instead of page numbers.
Please note that many of the page functionalities won't work as expected without javascript enabled.
Bose (2007) in respect of both intra and inter-day futures and spot index returns argues that bad
news at any given time pushes up volatility in the next period by about three times as much as a
good news of similar magnitude. The researchers created not just an overall EMV tracker, but several
category-based versions as well. This explains why recent studies cannot find empirical evidence to
support Chen and Singal (2003). While return is considered as a reward of investing and the risk is
the amount of potential. More research is needed to investigate reasons about the poor performance
of GARCH-M, particularly hidden factors that in such an event influence expected returns on stocks.
Karmakar (2005) found using daily return data of 50 individual stocks of the Nifty that only eight
out of fifty companies exhibited significant leverage effect and as such needed an asymmetric
GARCH model, such as EGARCH to capture their unique nature of volatility. You can also use
hedging strategies to navigate volatility, such as buying protective puts to limit downside losses
without having to sell any shares. The idea of volatility clustering which implies that, “large changes
in volatility tend to be followed by large changes, of either sign, and small changes in volatility tend
to be followed by small changes“, was first documented by Mandelbrot (1963) and later on it was
further elaborated by Engle (1982) and Bollerslev (1986) with the introduction of Autoregressive
Conditional heteroscedasticity (ARCH) and Generalised Autoregressive Conditional
heteroscedasticity (GARCH) models. The traditional econometric model often assumes that the
variance is constant, that is, the variance is kept constant at different times. Download Free PDF
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More freedom in the moving of capital flows improves the allocation of capital globally, allowing
resources to move to areas with higher rates of return.
Volatility is a hot issue in economic and financial research. Demetrescu (2007) states that market
participants individually often perceive risk of a stock given by volatility, differently. Additionally,
short-term variants of the technical trading rules have better predictive ability than long-term
variants. Risk measures give investors an idea of the volatility of a fund relative to its benchmark
index. A time series that exhibits clusters or persistence is believed to have strong predictive strength.
This is simply because of the fact that volatility is considered as an important concept for many
economic and financial applications. The free movement of capital across global stock market has
exposed them to the challenge of external spillover effects which are often beyond the intervention
of local policy mechanism. Considering volatility as constant over time is now considered. It supports
the hypothesis of the efficient financial markets. Market volatility can also be seen through the
Volatility Index (VIX), a numeric measure of broad market volatility. Using sentiment-augmented
EGARCH component model, we analyse the impacts of sentiment on market excess return, the
permanent component of market volatility and the transitory component of market volatility. At
second stage, suitable cross-references were recognized in this primary sample by first examining the
publications’ title in the reference portion and their context and cited content in the text. Perhaps due
to this reason, it has been found that these methodologies are not preferred at the practioner’s level.
An asset's volatility is a key factor when pricing options contracts. One potential explanation is that
short sellers in developed mar- kets can now hedge worldwide, and they do not need to be li- mited
to a single market, while short sellers in developing mar- kets, in contrast, have to balance their short
positions within the local markets due to strict capital account controls. Since short sellers cannot
close their positions during non-trading hours, they tend to close their positions by the weekend to
avoid the potential losses which might occur during the long period of non-trading. Therefore if we
study the research paper we can develop a trading system that will increase our chance of making
money in the stock market. Researchers observe keenly all the selected literature to answer the
following research question: What are the effective GARCH models to recommend for performing
market volatility and return analysis. Such a nature of stock return requires its measurement. A few
studies have been reviewed where in results about establishment of relationship between the duo has
been mostly found statistically not significant. It is observed that when volatility beams the markets
soar and when markets roar the volatility fades away. However, investors have lost lot of money in
the derivatives market due to lack of knowledge about the product and investment strategies etc.
They also find that analysts’ earnings forecasts for such firms became more uniform at the onset of
recent conflicts, including that in Afghanistan in 2001 and Iraq in 2003. Additional challenges are
modeled by differences of expression between different languages. In order to empirically test the
patterns from Table 3, we in- troduce Table 4 for the pooled regressions based on equations (1) and
(2) as shown earlier and all variables are defined the same. Importantly, the Asian emerging stock
markets interaction was less before the global financial crisis period. We have then tested for ARCH
effects, and subsequently employed various models of the ARCH and GARCH conditional volatility.
They also found that significant asymmetric effects in five of these industries. Adam received his
master's in economics from The New School for Social Research and his Ph.D. from the University
of Wisconsin-Madison in sociology. It further suggests that Asian investors are both rational and
irrational decision markers.
The standard error is the standard deviation of a sample population. However, the traditional
GARCH model does not take into account differential impacts of good and bad news on stock
return volatility. Lakonishok and Maberly (1990), Abraham and Ikenberry (1994) and Chan et al.
(2004) attribute part of the weekend effect to the differen- tial trading patterns or holding
preferences of institutions and individuals. In this manuscript, it is proposed to categorize the studies
not only by their model selection standards but also for the inputs used for the return volatility as
well as how precise it is spending them in terms of return directions. There are several ways to
measure volatility, including beta coefficients, option pricing models, and standard deviations of
returns. Asymmetric GARCH models, for instance and like, EGARCH, GJR GARCH, and
TGARCH, etc. In the short-run, volatility is believed to be effected by trading volume or inclination
of investors to trade in one direction, presence of options and futures trading, circuit breakers
interventions and computerised and program trading. These choices will be signaled to our partners
and will not affect browsing data. If the stock has a beta value of 1, it tends to change with the
change in the index. Volatility often refers to the amount of uncertainty or risk related to the size of
changes in a security's value. Also, evidence indicates that futures returns are more volatile than
stock index returns when there are big price movements. The role of external systemic risk can’t be
ignored as effects of such events in many cases prolong drastically. At last, it is worth mentioning
that even though there has been plenty of debate about the complexity of volatility of the stock
returns, the GARCH model have evolved as a better tool for estimation of time-varying conditional
volatility of stock returns across the world. The instances of weak economic relation between
conditional volatility and expected returns points about the missing risk factors that need to be
pinned down while modelling of any risk-returns relationships. In this research, we have carried out a
detail autoregressive conditional heteroskedasticity (ARCH) and its generalised models to estimate
conditional and asymmetric volatilities. Schmitt and Westerhoff (2016) have attributed the volatility
clustering phenomenon associated with stock returns to the herding behaviour of speculators. The
method was revised a few days before the submission. Measuring the stock market volatility is an
incredibly complex job for researchers. Research paper must be written in English language.
Interestingly, before crisis, Japanese stock market is effecting the volatility spillover, but post crisis,
US stock market bears greater impact on the volatility of three small south Asian markets. This leads
to the question of whether this sample difference leads to any bias. But the best results overall are
obtained by the entropy-based forecast model. Conversely, for the area of forecasting, the DCC-
GARCH model was more parsimonious. Following this line, we also consider the substitution effect
of put options for short sales. Considering volatility as constant over time is now considered.
Asymmetric GARCH models do well to explain the uneven impact of bad and good news or
information on the volatility of stock returns, however, more evidence at the firm level and across
markets is needed to generalise the facts. International Journal of Translational Medicine (IJTM).
Volatility is also used to price options contracts using models like Black-Scholes or binomial tree
models. Our empirical results strongly support Chen and Singal’s (2003) fin- dings that the weekend
effects are partly caused by the actions of short sellers’ position adjustments. In the GARCH model,
current volatility is influenced by past innovation to volatility.
The volatility dynamics such as volatility clustering, volatility persistence and leverage effect in these
sectors are investigated by using three GARCH Family models to know the status of these sectors
after recession period. With the help of time-series plots, the study demonstrates in layman terms
how mean-reversion, clustering and heteroscedasticty exhibits in stock market volatility. This concept
also gives traders a way to calculate probability. However, the argument placed is that the
phenomenon is more pronounced for indices than for individual stocks. This category covers reports
about GDP, inflation, housing starts, jobs, and other indicators of the broad economic outlook. The
abstracts of the recognized further publications were examined to determine whether the paper was
appropriate or not. The periodic break down of co-integrating relationship is advantageous to foreign
investors. For each country, we begin our analysis on January 1 st, 1980, or on the first date for
which CEIC data is available, whichever comes later. However, in the developed markets, the impact
of short sales on the weekend effect is more ambiguous. Table 3. Comparison between developed
and developing markets—predictions. The empirical analysis consists of three main parts based on
the role of investor sentiment in the stock markets. This is a strong support for Chen and Singal’s
(2003) story. First, empirical research on the heteroscedastic character of stock returns volatility is
examined. It is, thus, recommended that due to the inadequacies of popular asset pricing models
such as the Capital Asset Pricing Model, consideration should be made towards augmenting these
asset pricing models with a sentiment risk factor. This paper noticed that all the studies in this review
used an investigational research method. Its phenomenon might be caused by random level shifts in
volatility. After US military forces were deployed in Afghanistan, the range of analysts’ quarter-
ahead, two-quarters-ahead, and even two-years-ahead earnings forecasts narrowed for defense
companies far more than for nondefense companies. The asymmetric volatility transmission
mechanism operates from the US stock market, i.e. to the Indian and Sri Lankan stock markets
signifying that negative innovations in US equity prices increase volatility in considerably more than
positive innovations in India and Sri Lanka. Despite the opportunity of this technique, its exercise
has not been overly widespread in business research, but it is expanding day by day. Bhar and
Nikolova (2007) provide evidence of a positive return spillover from world index to all the BRIC
countries, a positive volatility spillover effect from world index to Russia, Brazil and India and a
negative volatility spillover effect from world index to China. In the full sample, the coeffi- cients of
CMON it are not significant for the developed markets, while the coefficients of CMON it for the
developing markets are significantly negative, confirming the predictions in Pattern 1. Thus, we can
report daily volatility, weekly, monthly, or annualized volatility. How volatility is measured will
affect the value of the coefficient used. Volatility refers to the degree of dispersion of random
variables. The results have shown that the validity of the questionnaire is high with the coefficient
value of.924 based on the consensus from the experts. Recently, Chen and Singal (2003) propose an
expla- nation that the weekend effect might be linked to short sales. While return is considered as a
reward of investing and the risk is the amount of potential. In this regard, it was significantly
essential to balance parsimony and flexibility when modeling multivariate GARCH models. In the
case of high beta, the stock tends to increase more the movement of the index. You can also use
hedging strategies to navigate volatility, such as buying protective puts to limit downside losses
without having to sell any shares. Using 60 indices from around the world, we document the fol-
lowing patterns: In the full sample (both before and after 1995) short sellers’ actions can explain the
weekend effect in devel- oping markets but not in developed ones.