Forecasting the conditional heteroscedasticity of stock returns usingasymmetric models based on empirical evidence from Eastern Europeancountries: Will there be an impact on other industries?

Abstract

This empirical study investigates the leverage effect in six Eastern European countries under normal and non-normaldistribution densities for the sample period from January 2020 to August 2020. We find three countries, Bulgaria, CzechRepublic and Russia which are subject to ARCH effect whereas Poland, Romania and Hungary do not exhibit ARCHeffect in daily stock returns. Further, our study finds leverage effect, where past bad news affects is asymmetrical, pastnegative returns cause more volatility in current stock returns as compared to past positive returns, in three EasternEuropean countries. Based on the AIC and BIC model selection criteria we find that the non-normal student t-distributionand GED produce reliable estimates for Bulgaria, Czech Republic and Poland, respectively. The autocorrelation functionQ1 statistic confirms the insignificance of autocorrelation in residuals of TGARCH model. The impact of stock marketdynamics on other industries, such as pharmaceutical industry, textile and clothing industry, automotive industry issignificant, especially in the conditions of COVID-19 pandemic