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Stock Market Crash and Stock Return Volatility: Empirical Evidence from Dhaka Stock Exchange

Author

Listed:
  • K. M. ZAHIDUL ISLAM

    (Associate Professor,)

  • SAYED FARRUKH AHMED

    (Assistant Professor,)

Abstract

This paper empirically investigates the impact of stock market crash on the volatility of Dhaka Stock Exchange stock return of Bangladesh with GARCH-type framework by using data of daily closing stock price indices of (DSE General Index) over the period from 9 November 2004 to 31 July 2013. The results of GARCH-M (1,1) model conclude that conditional standard deviation is negatively related to the level of returns. While this result is not consistent with the theory of a positive risk premium on stock indices, in special circumstances investors may not claim higher risk premium if they are competent enough to bear risk at times of specific volatility. Moreover, the model also confirms that stock market crash affected the volatility of DSE General Index return and there is a propensity for the volatility to erode over time.

Suggested Citation

  • K. M. Zahidul Islam & Sayed Farrukh Ahmed, 2015. "Stock Market Crash and Stock Return Volatility: Empirical Evidence from Dhaka Stock Exchange," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 38(3), pages 25-34.
    • Handle: RePEc:ris:badest:0786
    as

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    References listed on IDEAS

    as
    1. Brooks,Chris, 2008. "RATS Handbook to Accompany Introductory Econometrics for Finance," Cambridge Books, Cambridge University Press, number 9780521896955, June.
    2. Nawal Kishor & Raman Preet Singh, 2014. "Stock Return Volatility Effect: Study of BRICS," Transnational Corporations Review, Ottawa United Learning Academy, vol. 6(4), pages 406-418, December.
    3. 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.
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    5. repec:icf:icfjaf:v:20:y:2014:i:2:p:75-83 is not listed on IDEAS
    6. Frederic S. Mishkin & Eugene N. White, 2002. "U.S. Stock Market Crashes and Their Aftermath: Implications for Monetary Policy," NBER Working Papers 8992, National Bureau of Economic Research, Inc.
    7. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. K.M. Zahidul Islam, Yeasmin Akter and MD. Nahid Alam, 2020. "Macroeconomic Variables and Stock Returns in Bangladesh: An Empirical Analysis in The Presence of Structural Breaks," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 45(2), pages 115-141, June.
    2. Mohammad Sahabuddin & Md. Aminul Islam & Mosab I. Tabash & Suhaib Anagreh & Rozina Akter & Md. Mizanur Rahman, 2022. "Co-Movement, Portfolio Diversification, Investors’ Behavior and Psychology: Evidence from Developed and Emerging Countries’ Stock Markets," JRFM, MDPI, vol. 15(8), pages 1-15, July.
    3. Hossain, Md. Jamal & Akter, Sadia & Ismail, Mohd Tahir, 2021. "Performance Analysis of GARCH Family Models in Three Time-frames," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 55(2), pages 15-28.
    4. Neenu C & T Mohamed Nishad, 2022. "Asymmetric Volatility and Leverage Effect in Stock Market: A Bibliometric Review," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 14(1), pages 21-34, June.

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    More about this item

    Keywords

    Dhaka Stock Exchange; Volatility; Crash; GARCH; Bangladesh;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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