Analysis of asymmetric and persistence in stock return volatility in the Nairobi Securities Exchange market phases
Date
2014
Authors
Ogega, Haggai Owidi
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
Asymmetric and persistence in the volatility of stock returns are very fascinating features of the behaviour of securities market. The persistence in volatility has a major effect on the future volatility of the security market under the influence of shocks and asymmetric features increases the volatility. This study examined salient features of financial time series of the stock market phases and the behaviour of stock return volatility in the Kenyan stock exchange during the market phases for the 20 share index and the 10 sampled companies over a period of 2003 to 2013. The results obtained shows that bullish market phase takes a longer time to die out than the bearish market phase and fluctuations in the series are variable in time with bear phase much more frequent than bull phase. The asymmetric effect, volatility persistence and clustering volatility behaviour of the volatility are fitted by the Fractionally Integrated Exponential GARCH (FIEGARCH) model. The volatility in the Kenyan stock market during both phases exhibits long-run memory and volatility asymmetry. Volatility estimate and diagnostic tests show volatility clustering, that is, shocks to the volatility process persist and the reaction to news arrival is asymmetrical, indicating that the effect of good and bad news is unsymmetrical with positive news impacting more during bullish and negative news more during bearish. In addition, the bullish phase exhibits a higher degree of long memory persistency meaning when there is a shock on volatility it takes a longer time to decay during bull than bear phase. The findings also lead to the rejection of efficiency market hypothesis (EMH) in NSE. The empirical results would be helpful to investors, policy makers and stock exchange administrators as these give indication of the behaviour of the volatility during the market phases. Furthermore, if traders know the behaviour during the phases, they will adjust to the market‟s moods.
Description
A research submitted to the School of Management and Commerce in partial fulfilment of the requirements for the degree of Master at Commerce
Keywords
asymmetry, bear, behavior, bull, FIEGARCH, persistence, volatility, Nairobi Securities Exchange