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Testing Volatility Asymmetry in Istanbul Stock Exchange

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  • Cem Payaslioglu

Abstract

In this paper three different models of daily stock return volatility in the Istanbul Stock Exchange (ISE) are estimated and compared. The mean model is represented by stock return variable predicted by a MA (1) term, the day-of-the week (Monday) dummy and the risk term which is the time-varying conditional variance with three alternative specifications: These are standard garch-m (1,1), egarch-m (1,1) and tgarch-m (1,1) models. The latter two incorporate leverage effect into the model. Choice of the appropriate volatility model is determined by inspecting level and squares of the standardized residuals. In addition to the traditional model selection criteria diagnostic tests of Engle and Ng (1993) paper are also utilized. Estimation results revealed that 1) the asymmetry component in the leverage models are not significant. 2) Portmanteau statistics did not discriminate among the models. 3) All models passed the diagnostic tests successfully. These findings point to the necessity of further research with special consideration of other garch extensions in particular: t-distributed versions as well as non-parametric alternatives need to be studied.

Suggested Citation

  • Cem Payaslioglu, 2001. "Testing Volatility Asymmetry in Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 5(18), pages 1-12.
    • Handle: RePEc:bor:iserev:v:5:y:2001:i:18:p:1-12
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    File URL: http://www.borsaistanbul.com/datum/imkbdergi/EN/ISE_Review_18.pdf
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    3. Kivilcim Metin & Gulnur Muradoglu & Bilgehan Yazici, 1997. "An Analysis of the “Day of the Week Effect” on the Istanbul Stock Exchange," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 1(4), pages 15-26.
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    6. Recep Bildik, 1998. "Day-Of-The-Week Effects in Overnight Interest Rates: Evidence from Turkish Money Markets," Istanbul Stock Exchange Review, Research and Business Development Department, Borsa Istanbul, vol. 2(6), pages 49-78.
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    Cited by:

    1. Saadet Kirbas-Kasman & Adnan Kasman, 2003. "Volatility of ISE and Business Cycle," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 3(1), pages 67-84.

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