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Univariate GARCH Model Generated Volatility Skews for the CIVETS Stock Indices

In: Advances in Applied Economic Research

Author

Listed:
  • Coenraad C. A. Labuschagne

    (University of Johannesburg)

  • Niel Oberholzer

    (University of Johannesburg)

  • Pierre J. Venter

    (University of Johannesburg)

Abstract

The CIVETS countries consist of Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa. They are emerging market countries that are most likely to rise quickly in economic standing. In this paper GARCH, GJR-GARCH and EGARCH models are used to explore the daily closing values for selected CIVETS equity indices. Return volatility, the persistence thereof and the best fitting model for volatility forecasting are determined. The results obtained for the GARCH models indicated that the GJR-GARCH model was the best fitting model for the equity indices of Colombia and Egypt. The EGARCH model was the best fitting model for the equity indices for Indonesia, Turkey and South Africa, whilst the result obtained delivered no clear best fitting model for the Vietnamese VN-Index. In addition, there is evidence of the leverage effect for all the Indices included in this study with the exception of the Vietnamese VN-Index. The presence of leverage effects implies that a negative shock will lead to greater volatility. A comparison is also made between the option prices produced by constructing the implied volatility skews of options generated by these models, both by inclusion of the Global Finance Crises (GFC) period and by exclusion of the period of the GFC.

Suggested Citation

  • Coenraad C. A. Labuschagne & Niel Oberholzer & Pierre J. Venter, 2017. "Univariate GARCH Model Generated Volatility Skews for the CIVETS Stock Indices," Springer Proceedings in Business and Economics, in: Nicholas Tsounis & Aspasia Vlachvei (ed.), Advances in Applied Economic Research, chapter 0, pages 333-347, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-48454-9_24
    DOI: 10.1007/978-3-319-48454-9_24
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