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A Time Series Analysis of Major Indexes Using GARCH Model with Regime Shifts

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  • S. Aun Hassan

Abstract

There has always been a great interest in learning about changes in the volatility patterns of stocks and other time series due to exogenous shocks. Researchers and investors have also been curious to study the effect of unanticipated shocks on persistence of volatility over time. This paper studies three major indexes and utilizes the Iterated Cumulative Sums of Squares (ICSS) algorithm to capture time periods of sudden changes in volatility. The findings suggest that persistence of shocks to volatility is not as high as generally perceived. Volatility persistence declines significantly when regime shifts are combined with a Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model. This paper provides important implications for investors and financial researchers.

Suggested Citation

  • S. Aun Hassan, 2017. "A Time Series Analysis of Major Indexes Using GARCH Model with Regime Shifts," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 8(4), pages 127-133, October.
    • Handle: RePEc:jfr:ijfr11:v:8:y:2017:i:4:p:127-133
    DOI: 10.5430/ijfr.v8n4p127
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    References listed on IDEAS

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    1. Thorbecke, Willem, 1997. "On Stock Market Returns and Monetary Policy," Journal of Finance, American Finance Association, vol. 52(2), pages 635-654, June.
    2. Geske, Robert & Roll, Richard, 1983. "The Fiscal and Monetary Linkage between Stock Returns and Inflation," Journal of Finance, American Finance Association, vol. 38(1), pages 1-33, March.
    3. Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
    4. Lamoureux, Christopher G & Lastrapes, William D, 1990. "Persistence in Variance, Structural Change, and the GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 225-234, April.
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    Cited by:

    1. Cristi Spulbar & Jatin Trivedi & Ramona Birau & Tenea Cosmin Andrei & Abdullah Ejaz, 2019. "Estimating Volatility Spillovers, Dynamic Causal Linkages And International Contagion Patterns Between Developed Stock Markets: An Empirical Case Study For Usa, Canada, France And Uk," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 3, pages 44-62, June.

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