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The Economics and Finance Letters

March 2019, Volume 6, 1, pp 92-99

Regime Changes in the Volatility of Stock Markets

Houda Litimi

Houda Litimi 1

  1. University of Jeddah, College of Business, Khulais Branch, Department of Finance, Saudi Arabia. 1

on Google Scholar
on PubMed

Pages: 92-99

DOI: 10.18488/journal.29.2019.61.92.99

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Article History:

Received: 30 January, 2019
Revised: 08 March, 2019
Accepted: 16 April, 2019
Published: 02 July, 2019


Modeling and forecasting the volatility of financial markets has been the subject of considerable research over the last few decades. It is a key indicator on which financial decisions are based, knowing that the behavior of financial market operators is changing. In this regard, the most popular model in the description of the volatility of financial asset returns is certainly that of the heteroskedastic type. Some authors explain that the behavior of conditional variance can come from structural changes that are not considered by standard GARCH models; hence, the motivation of this paper is to investigate the GARCH model with regime changes. Applications on several world stock indexes, namely, the American S&P 500, the Japanese Nikkei 225, and the French CAC 40 show that the model with regime changes explains the dynamics of risk more efficiently than the classical single-regime models. Furthermore, the conditional distributions of the returns are better modeled with the flexible student’s t test.
Contribution/ Originality
This study uses a new estimation methodology by using a GARCH model with regime changes to explain the dynamics of conditional volatility.


GARCH, Volatility, Regime change, Indexes.




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This study received no specific financial support.

Competing Interests:

The author declares that there are no conflicts of interests regarding the publication of this paper.


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