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Modelling and Forecasting volatility in International financial markets

Author

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  • Samuel Tabot Enow

    (Research associate, The IIE Vega school, 444 Jan Smuts Ave, Bordeaux, Randburg, 2194, South Africa)

Abstract

Modelling volatility using asset price returns has always been at the forefront of financial economics and option pricing. Observing the conditional variance properties in these asset returns, can be very useful for trend analysis and volatility predictions which are ever needed for trading, portfolio management and financial decision making. The aim of the study was to model and forecast volatility in stock markets. Six financial markets namely the Nasdaq, JSE, the DAX, the CAC 40 and the Nikkei 225 were used as samples with a sampling frame from January 29, 2018 to January 29, 2023. The findings of this study revealed that the variance for all the financial markets under consideration changes significantly with the passage of time. Also, volatility in the JSE, DAX & CAC 40 display fat tail distributions and it is expected to move by three standard deviations. Accordingly, volatility will persist in the Nasdaq, DAX and CAC 40 at an increasing rate but will persist at a decreasing rate in the JSE and Nikkei 225. Considering the peril involved in stock market investing, this study makes a notable contribution to estimating market volatility which is an integral component of asset pricing. With this knowledge, analyst and market traders will have a better understanding of the error distribution in stock markets which will assist in specifying predictive asset prices. Key Words:Volatility, Stock Markets, forecasting, GARCH model, ARCH model

Suggested Citation

  • Samuel Tabot Enow, 2023. "Modelling and Forecasting volatility in International financial markets," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 12(2), pages 197-203, March.
    • Handle: RePEc:rbs:ijbrss:v:12:y:2023:i:2:p:197-203
    DOI: 10.20525/ijrbs.v12i2.2338
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    References listed on IDEAS

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    1. Sophie X. Ni & Jun Pan & Allen M. Poteshman, 2008. "Volatility Information Trading in the Option Market," Journal of Finance, American Finance Association, vol. 63(3), pages 1059-1091, June.
    2. Samuel Tabot Enow, 2021. "The Impact of Covid-19 on Market Efficiency: A Comparative Market Analysis," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 9(4), pages 235-244.
    3. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    4. Samuel Tabot Enow, 2022. "Overreaction And Underreaction During The Covid-19 Pandemic In The South African Stock Market And Its Implications," Eurasian Journal of Business and Management, Eurasian Publications, vol. 10(1), pages 19-26.
    5. Pinar KAYA & Bulent GULOGLU, 2017. "Modeling and Forecasting the Markets Volatility and VaR Dynamics of Commodity," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 11(1), pages 9-49.
    6. Samuel Tabot Enow, 2022. "Price Clustering in International Financial Markets during the COVID-19 Pandemic and Its Implications," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 10(2), pages 46-53.
    7. Guglielmo Maria Caporale & Menelaos Karanasos & Stavroula Yfanti & Aris Kartsaklas, 2021. "Investors' trading behaviour and stock market volatility during crisis periods: A dual long‐memory model for the Korean Stock Exchange," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4441-4461, July.
    8. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Cited by:

    1. Marwa Hagagy & Saddam Bekhet, 2026. "Assessing Bitcoin as an alternative investment asset in Egypt: opportunities and risks," Future Business Journal, Springer, vol. 12(1), pages 1-14, December.
    2. Samuel Tabot Enow, 2024. "Investigating Overreaction and Underreaction in Initial Public Offerings," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 172-177, July.
    3. Samuel Tabot Enow, 2024. "Investing in the long-term: an empirical approach," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 13(4), pages 537-541, June.
    4. Wenbo Ge & Pooia Lalbakhsh & Leigh Isai & Artem Lensky & Hanna Suominen, 2023. "Comparing Deep Learning Models for the Task of Volatility Prediction Using Multivariate Data," Papers 2306.12446, arXiv.org, revised Jun 2023.

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