Asymmetry and Persistence of Stock Returns: A Case of the Ghana Stock Exchange

Abonongo John

doi:10.11648/j.ijber.20160506.11

Abstract

Measuring and estimating volatility of asset return is bubbly for risk management, asset allocation, and option pricing. This paper investigated the asymmetry and persistence of the return of some stocks on the Ghana Stock Exchange using univariate TGARCH-M (1, 1) and half-life measure of the daily returns of eight stocks from 02/01/2004 to 20/12/2014. It was realized that, volatility was persistent (explosive process) in all the stocks. The persistence in volatility was extended in investigating the half-life measure of the stocks and it was realized that almost all the stocks had strong mean reversion and short half-life measure with the exception of Fan Milk Limited. Also all the returns series exhibited a positive leverage effect parameter indicating that bad news influenced volatility than good news of the same magnitude.

Highlights

Stock price volatility is an extremely important concept in finance for numerous reasons
This paper examined the asymmetry and persistence in stock returns using univariate Threshold Generalized Autoregressive Conditional Heteroskedasticity (TGARCH)-M (1,1) with the student-t distributional assumption and half-life measure
It was evident that volatility was persistent across all the stocks since the summation of ARCH and generalized the ARCH model (GARCH) coefficients were all very close to one (1)

Summary

Introduction

Stock price volatility is an extremely important concept in finance for numerous reasons. What causes stock price volatility is a question that remains unsettled in finance field. This is because of the great number of complicated variables, which is not an easy task and up to now there is no consensus about it. Researchers in quest of answers to this question have investigated the stock price volatility from different angles In this regards, from late twentieth century and after introducing ARCH model by [8], as said by [3] and [27], a lot of studies accomplished in developed country and to some extent in developing countries has been done by researchers in this area using different methods

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Conclusion