Modelling Volatility of Asia Pacific Stock Market

Abstract

Stock returns have a strong positive relation with the volatility estimates. In the present turbulent and tranquil situation, the selection of an appropriate volatility model is highly crucial for financial analysts, investors and market regulators. The presentstudy aims at modelling volatility of stock market of 9 Asian pacific countries viz., Australia, China, Hong Kong, India, Indonesia, Japan, New Zealand, South Korea and Taiwan. The study attempts to propose best model that can predict stock return after due consideration of leverage effect of the concerned market. The results indicate that none of the selected stock return follows normal distribution. All financial time series found to be is stationary at level and witness hetereoscedasticity, volatility clustering and presence of leverage effect. AIC and SIC suggest the use of GARCH model to predict the return of Chinese stock market. The volatility of Indian stock market and Hong Kong stock market can be better captured by A-PARCH model. For rest of the markets, AIC primarily advocates A-Parch model whereas SIC recommends the use of EGARCH model.