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The Impact of IFRS Adoption on Stock Market Volatility

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  • Pushpa Negi
  • Romit Raja Srivastava
  • Shiva Bhasin

Abstract

From 2005 onwards, consolidated financial statements of listed European companies of around 7,000 had to comply with IFRS (IAS). This study examines the impact of IFRS adoption on the stock market volatility of 10 European stock markets by fitting Autoregressive Conditional Heteroskedasticity (ARCH) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models. The data was obtained from yahoofinance.com for the period January 1, 2005 to December 31, 2005. The stationarity of the time series was checked through unit root test and then descriptive statistics of different stock indices was obtained. The ARCH model was applied to check the presence of ARCH effect in all return series and GARCH(1, 1) model was used to estimate the return volatility. The results suggested that there was high volatility of returns in the markets during the sample period. The GARCH coefficient of Austria, France, Germany, Hungary, Spain and the United Kingdom was close to 1, which indicates that volatility shocks were quite persistent. The coefficient of the lagged squared returns was also positive for these indices, and it implied that stock market volatility or market operators react more to good news than bad news, or the market is positive about the adoption of IFRS. On the other side, the IFRS adoption news did not affect the volatility of Greece, Italy, the Netherlands and Portugal during the sample period.

Suggested Citation

  • Pushpa Negi & Romit Raja Srivastava & Shiva Bhasin, 2014. "The Impact of IFRS Adoption on Stock Market Volatility," The IUP Journal of Applied Finance, IUP Publications, vol. 20(4), pages 58-68, October.
    • Handle: RePEc:icf:icfjaf:v:20:y:2014:i:4:p:58-68
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    Cited by:

    1. Marisa Camilher Camargo & Ryan Sarsfield & Markku Kanninen & Theresa Cashore, 2023. "The Role of Private Philanthropy in Sustainability Standards Harmonization: A Case Study," Sustainability, MDPI, vol. 15(13), pages 1-15, July.

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