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Forecasting the Jordanian stock index: modelling asymmetric volatility and distribution effects within a GARCH framework

Author

Listed:
  • Heitham Al-Hajieh
  • Hashem AlNemer
  • Timothy Rodgers
  • Jacek Niklewski

    (King Abdulaziz University
    University of Jeddah
    School of Economics, Finance and Accounting, Coventry University
    School of Economics, Finance and Accounting, Coventry University)

Abstract

The modelling of market returns can be especially problematical in emerging and frontier financial markets given the propensity of their returns to exhibit significant non-normality and volatility asymmetries. This paper attempts to identify which representations within the GARCH family of models can most efficiently deal with these issues. A number of different distributions (normal, Student t, GED and skewed Student) and different volatility of returns asymmetry representations (EGARCH and GJR- -GARCH) are examined. Our data set consists of daily Jordanian stock market returns over the period January 2000 – November 2014. Using both the Superior Predicative Ability (SPA) and Model Confidence Set (MCS) testing frameworks it is found that using GJR-GARCH with a skewed Student distribution most accurately and efficiently forecasts Jordanian market movements. Our findings are consistent with similar research undertaken in respect to developed markets.

Suggested Citation

  • Heitham Al-Hajieh & Hashem AlNemer & Timothy Rodgers & Jacek Niklewski, 2015. "Forecasting the Jordanian stock index: modelling asymmetric volatility and distribution effects within a GARCH framework," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 4(2), pages 9-26.
    • Handle: RePEc:cpn:umkcjf:v:4:y:2015:i:2:p:9-26
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    References listed on IDEAS

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