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STOCK RETURNS VOLATILITY IN AN EMERGING MARKET: The Pakistani Evidence

Author

Listed:
  • Fazal HUSAIN
  • Jamshed UPPAL

Abstract

This paper examines stock returns volatility in the Pakistani equity market. Using daily stock prices of 36 companies, 8 sector indices, and a market index, the Auto Regressive Conditional Heteroscedasticity (ARCH) class of models were applied. The analyses suggest that one of the factors causing high serial dependence in stock returns in the Pakistani equity market is the presence of conditional heteroscedasticity or volatility in stock returns and that even after controlling for volatility the returns in the market are, in general, predictable. The results show GARCH (I, I) to be an appropriate representation of conditional variance implying that current volatility in the market is significantly affected by past volatilities. There is also strong evidence of persistence in variance in returns implying that shocks to volatility continue for a long period. However, after accounting for the structural shift due to opening of the market, the persistence was found to decline significantly.

Suggested Citation

  • Fazal HUSAIN & Jamshed UPPAL, 1999. "STOCK RETURNS VOLATILITY IN AN EMERGING MARKET: The Pakistani Evidence," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 15, pages 19-40.
    • Handle: RePEc:pje:journl:article1999ii
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    Cited by:

    1. Syed Adeel Hussain, 2013. "Differentiation of Market Risk Characteristics among Sharia Compliant and Conventional Equities listed on the Pakistani Capital Market - KSE 100 Index over a selective time period," 2013 Papers phu395, Job Market Papers.
    2. Mamoon, Dawood, 2007. "Macro Economic Uncertainty of 1990s and Volatility at Karachi Stock Exchange," MPRA Paper 3219, University Library of Munich, Germany.
    3. Mohamed Malek Belhoula & Walid Mensi & Kamel Naoui, 2024. "Impacts of investor's sentiment, uncertainty indexes, and macroeconomic factors on the dynamic efficiency of G7 stock markets," Quality & Quantity: International Journal of Methodology, Springer, vol. 58(3), pages 2855-2886, June.
    4. Ushna Akber & Nabeel Muhammad, 2014. "Is Pakistan Stock Market Moving towards Weak-Form Efficiency? Evidence from The Karachi Stock Exchange and the Random Walk Nature of Free-Float of Shares of KSE 30 Index," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(6), pages 808-836, June.
    5. Akber, Ushna & Muhammad, Nabeel, 2013. "Is Pakistan Stock Market moving towards Weak-form efficiency? Evidence from the Karachi Stock Exchange and the Random Walk Nature of free-float of shares of KSE 30 Index," MPRA Paper 49128, University Library of Munich, Germany.
    6. Abid Hameed & Hammad Ashraf, 2006. "Stock Market Volatility and Weak-form Efficiency: Evidence from an Emerging Market," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 1029-1040.
    7. Javed Iqbal & Aziz Haider, 2005. "Arbitrage Pricing Theory: Evidence From An Emerging Stock Market," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 10(1), pages 123-139, Jan-Jun.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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