A study on the behavior of volatility in Saudi Arabia stock market using symmetric and asymmetric GARCH models

Ajab Al Freedi, Ahmed Shamiri, Zaidi Isa

Research output: Contribution to journalArticle

Abstract

Problem statement: This study examines several stylized facts (heavy-tailedness, leverage effect and persistence) in volatility of stock price returns exploiting symmetric and asymmetric GARCH family models for Saudi Arabia. Approach: This study is carried out using closing stock market prices over 15 years covering the period 1 January 1994 to 31 March 2009. The sample period is divided into three sub-periods according to the local crisis in 2006. Results: The results reveal that asymmetric models with heavy tailed densities improve overall estimation of the conditional variance equation. Moreover, we find that AR (1)-GJR GARCH model with Student-t outperform the other models during and before the local crisis in 2006, while AR (1)-GARCH model with GED exhibits a better performance after the crisis. Furthermore, the findings reveal the existence of leverage effect at 1 percent significance level. Conclusion/Recommendations: Finally, the volatility persistent in the samples during and after crises decreases in all models under various distribution assumptions.

Original languageEnglish
Pages (from-to)98-106
Number of pages9
JournalJournal of Mathematics and Statistics
Volume8
Issue number1
DOIs
Publication statusPublished - 10 Dec 2011

Fingerprint

GARCH Model
Stock Market
Volatility
Leverage Effect
Stylized Facts
Conditional Variance
Generalized Autoregressive Conditional Heteroscedasticity
Significance level
Stock Prices
Model
Persistence
Percent
Recommendations
Covering
Decrease
Crisis

Keywords

  • Asymmetric densities
  • Fat tailedness
  • Garch
  • Volatility

ASJC Scopus subject areas

  • Mathematics(all)
  • Statistics and Probability

Cite this

A study on the behavior of volatility in Saudi Arabia stock market using symmetric and asymmetric GARCH models. / Al Freedi, Ajab; Shamiri, Ahmed; Isa, Zaidi.

In: Journal of Mathematics and Statistics, Vol. 8, No. 1, 10.12.2011, p. 98-106.

Research output: Contribution to journalArticle

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