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.
Highlights
Saudi Arabia is one of the countries that is politically stable, acts as a leading force within the Gulf Cooperation Council (GCC) and plays an important role within the Organization of the Petroleum Exporting Countries (OPEC)
In December 2005, Saudi Arabia became a member of World Trade Organization (WTO)
This sharp increase in the index price could be due to the good news effects, such as the European Union approval of Saudi Arabia into WTO and the sharp increase in the oil price ($70) in 2005
Summary
Saudi Arabia is one of the countries that is politically stable, acts as a leading force within the Gulf Cooperation Council (GCC) and plays an important role within the Organization of the Petroleum Exporting Countries (OPEC). The second shocking event was caused by the Asian financial crisis during 1997-1998 This crisis resulted in a decline to 1,313.6 point in the index price. The index price started at 4,432 point during year 2004 and increased sharply to 20,600 point in 2006, which represent highest level during the last 18 years and only lasted for one day (25th February 2006) before the index decline. This sharp increase in the index price could be due to the good news effects, such as the European Union approval of Saudi Arabia into WTO and the sharp increase in the oil price ($70) in 2005. By the end of 2008-2009, the stock market lost about 5,343 points where the price declined to the same level as in 2004
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