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Modelling Stock Returns Volatility and Asymmetric News Effect: A Global Perspective

Pages: 1-15
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Modelling Stock Returns Volatility and Asymmetric News Effect: A Global Perspective

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DOI: 10.18488/journal.89.2021.71.1.15

Kingsley Onyekachi Onyele , Emmanuel Chijioke Nwadike

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Kingsley Onyekachi Onyele , Emmanuel Chijioke Nwadike (2021). Modelling Stock Returns Volatility and Asymmetric News Effect: A Global Perspective. Financial Risk and Management Reviews, 7(1): 1-15. DOI: 10.18488/journal.89.2021.71.1.15
This paper modelled stock returns volatility using daily S&P Global 1200 index from 1st September, 2010 to 30th September, 2020. The S&P 1200 represents a free-float weighted stock market index of global equities covering seven (7) regional stock market indices and approximately 70% of the global market capitalization, hence was used to compute global stock returns. The data analysis was carried out with Generalized Autoregressive Conditional Heteroskedasticity (GARCH) techniques. Of the variant GARCH models specified in this study, the symmetric GARCH-M (1,1) and the asymmetric TGARCH (1,1) models were found suitable for the estimation. The findings from the GARCH-M and TGARCH models revealed explosive volatility persistence and strong asymmetric news effect in the global stock market, respectively. The implication of volatility persistence is that current volatility shocks influenced expected returns over a long period. The asymmetric news effect showed that negative news (bad news) spurred stock returns volatility than positive news (good news) especially in 2020 which was due to the COVID-19 crisis as shown by the plot of the conditional variance. These results were consistent with the empirical findings of a number of studies in emerging markets. Hence, the study concludes that the global stock market exhibited high volatility persistence and leverage effect during the sampled period.
Contribution/ Originality
This study contributes to the literature by modelling global stock returns volatility and asymmetric news effect using a new stock index (S&P 1200 global index). The paper contributes the first logical analysis that volatility of S&P 1200 returns is explosive and largely influenced by news available in the global markets.

Testing the Validity of Arbitrage Pricing Theory: A Study on Dhaka Stock Exchange Bangladesh

Pages: 16-25
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Testing the Validity of Arbitrage Pricing Theory: A Study on Dhaka Stock Exchange Bangladesh

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Microsoft Academic Search

DOI: 10.18488/journal.89.2021.71.16.25

Syed Mohammad Khaled Rahman , Priyanka Mazumder

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Syed Mohammad Khaled Rahman , Priyanka Mazumder (2021). Testing the Validity of Arbitrage Pricing Theory: A Study on Dhaka Stock Exchange Bangladesh. Financial Risk and Management Reviews, 7(1): 16-25. DOI: 10.18488/journal.89.2021.71.16.25
The purpose of the study was to test the validity of Arbitrage Pricing Theory (APT) in Dhaka Stock Exchange (DSE) of Bangladesh. Secondary data has been used which was composed of observable macroeconomic and stock market variables. Study period was from January 2013 to October 2018, making a total of 70 monthly observations. Study found that interest rate and exchange rate has significant influence but market capitalization and tax rate have insignificant impact on return of DS-30 index. Except exchange rate, other three variables were negatively related with DS-30 index return. 1% increases in exchange rate results 0. 993% increase in stock prices while 1% increases in interest rate results 0. 486% decrease in stock prices and vice-versa. Strong negative correlation was seen between interest rate and stock index return. APT have failed to fully explain the change of DS-30 index return due to presence of two insignificant explanatory variables. This research has practical implications on stock market participants as investors’ optimal strategy largely influenced by precision of asset pricing models. This research has also policy implications for Securities & Exchange Commission, government, and other regulators as findings of the study will assist them to develop more efficient capital market.
Contribution/ Originality
This study contributes to the existing literature of asset pricing model by judging its reliability in Bangladeshi capital market. This study is one of very few studies which have investigated the validity of Arbitrage Pricing Theory in Dhaka Stock Exchange with the help of index of blue chip companies.