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Threshold Modelling of Stock Return Volatility on Eastern European Markets

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  • Kalvinder Shields

Abstract

A common finding for developed stock markets is that negative shocks entering the market lead to a larger return volatility than positive shocks of a similar magnitude. The following paper considers two emerging Eastern European Markets where the first point of investigation is whether an analogous asymmetric characteristic is reflected in emerging markets. The second point of investigation is whether the findings differ depending on the institutional microstructure of the exchange being examined. Hence, econometric techniques are adjusted and a ‘double-censored tobit GARCH’ model is developed. This paper finds that no asymmetry exists on either markets and possible reasons for this are proposed. JEL Classification: G14, G15, P21, P34. Copyright Kluwer Academic Publishers 1997

Suggested Citation

  • Kalvinder Shields, 1997. "Threshold Modelling of Stock Return Volatility on Eastern European Markets," Economic Change and Restructuring, Springer, vol. 30(2), pages 107-125, May.
  • Handle: RePEc:kap:ecopln:v:30:y:1997:i:2:p:107-125
    DOI: 10.1023/A:1003007708074
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    References listed on IDEAS

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    1. Shields, Kalvinder K, 1997. "Stock Return Volatility on Emerging Eastern European Markets," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(0), pages 118-138, Supplemen.
    2. Alice Nakamura & Masao Nakamura, 1983. "Part-Time and Full-Time Work Behaviour of Married Women: A Model with a Doubly Truncated Dependent Variable," Canadian Journal of Economics, Canadian Economics Association, vol. 16(2), pages 229-257, May.
    3. Gourieroux, Christian & Monfort, Alain, 1992. "Qualitative threshold ARCH models," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 159-199.
    4. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September.
    5. Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993. " On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks," Journal of Finance, American Finance Association, vol. 48(5), pages 1779-1801, December.
    6. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-1778, December.
    7. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    8. Nelson, Daniel B & Cao, Charles Q, 1992. "Inequality Constraints in the Univariate GARCH Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(2), pages 229-235, April.
    9. Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
    10. Barry Gordon & Libby Rittenberg, 1995. "The Warsaw Stock Exchange: A Test of Market Efficiency," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 37(2), pages 1-27, July.
    11. Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
    12. Weiss, Andrew A., 1986. "Asymptotic Theory for ARCH Models: Estimation and Testing," Econometric Theory, Cambridge University Press, vol. 2(01), pages 107-131, April.
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    Cited by:

    1. Charemza, Wojciech W. & Majerowska, Ewa, 2000. "Regulation of the Warsaw Stock Exchange: The portfolio allocation problem," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 555-576, April.
    2. Bohl, Martin T. & Henke, Harald, 2003. "Trading volume and stock market volatility: The Polish case," International Review of Financial Analysis, Elsevier, vol. 12(5), pages 513-525.
    3. Aycan HEPSAG, 2016. "Asymmetric stochastic volatility in central and eastern European stock markets," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(607), S), pages 135-144, Summer.
    4. Kovačić, Zlatko, 2007. "Forecasting volatility: Evidence from the Macedonian stock exchange," MPRA Paper 5319, University Library of Munich, Germany.
    5. Ewa Majerowska, "undated". "Validity of the optimal portfolio allocation model with price constraints on the example of the Warsaw Stock Exchange," Discussion Papers in European Economics 99/5, Department of Economics, University of Leicester.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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