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The Persistence of SA Equity Volatility: a Component Arch Perspective

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  • N L Samouilhan

Abstract

This paper investigates the conditional volatilities of equity returns on the JSE for both the broad ALSI40 index and its various sub-sectors. Using a Component ARCH (CARCH) model the paper disaggregates the conditional volatilities of the equities into three distinct components: a time-invariable mean, a long-run (Permanent) dynamic and a short-run (Transitory) dynamic. Significant evidence of volatility persistence is found over both the long-run and the short-run for each series and for the broad index. The half-lives of such persistence for the broad ALSI is found to be 5.60 trading days for the short-run dynamics and 169 trading days for the long-run dynamics; these estimated short-run and long-run half-lives are found to vary greatly amongst the sectors. The long-run time-invariable underlying magnitude of equity returns volatility for the ALSI40 index is estimated at 1.45% per trading day, though again much heterogeneity is found amongst the various individual sectors under investigation.

Suggested Citation

  • N L Samouilhan, 2007. "The Persistence of SA Equity Volatility: a Component Arch Perspective," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 31(1), pages 99-118, April.
    • Handle: RePEc:taf:rseexx:v:31:y:2007:i:1:p:99-118
    DOI: 10.1080/10800379.2007.12106423
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