Structural breaks and GARCH models of stock return volatility : the case of South Africa

Show simple item record Babikir, Ali Gupta, Rangan Mwabutwa, Chance Owusu-Sekyere, Emmanuel 2013-05-20T06:50:53Z 2013-05-20T06:50:53Z 2012-11
dc.description.abstract This paper investigates the empirical relevance of structural breaks in forecasting stock return volatility using both in-sample and out-of-sample tests applied to daily returns of the Johannesburg Stock Exchange (JSE) All Share Index from 07/02/1995 to 08/25/2010. We find evidence of structural breaks in the unconditional variance of the stock returns series over the period, with high levels of persistence and variability in the parameter estimates of the GARCH(1,1) model across the sub-samples defined by the structural breaks. This indicates that structural breaks are empirically relevant to stock return volatility in South Africa. However, based on the out-of-sample forecasting exercise, we find that even though there structural breaks in the volatility , there are no statistical gains from using competing models that explicitly accounts for structural breaks, relative to a GARCH(1,1) model with expanding window. This could be because of the fact that the two identified structural breaks occurred in our out-of-sample, and recursive estimation of the GARCH(1,1) model is perhaps sufficient to account for the effect of the breaks on the parameter estimates. Finally, we highlight that, given the point of the breaks, perhaps what seems more important in South Africa, is accounting for leverage effects, especially in terms of long-horizon forecasting of stock return volatility. en_US
dc.description.librarian hb2013 en_US
dc.description.uri en_US
dc.identifier.citation Babikir, A, Gupta, R, Mwabutwa, C & Owusu-Sekyere, E 2012, 'Structural breaks and GARCH models of stock return volatility : the case of South Africa', Economic Modelling, vol. 29, no. 6, pp.2435 -2443. en_US
dc.identifier.issn 0264-9993 (print)
dc.identifier.issn 1873-6122 (online)
dc.identifier.other 10.1016/j.econmod.2012.06.038
dc.language.iso en en_US
dc.publisher Elsevier en_US
dc.rights © 2013 Elsevier. All rights reserved. Notice : this is the author’s version of a work that was accepted for publication in Economic Modelling. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economic Modelling, vol.29, issue 6, 2012. DOI : 10.1016/j.econmod.2012.06.038 en_US
dc.subject Stock return volatility en_US
dc.subject Structural breaks en_US
dc.subject In-sample tests en_US
dc.subject Out-of-sample tests en_US
dc.subject GARCH models en_US
dc.title Structural breaks and GARCH models of stock return volatility : the case of South Africa en_US
dc.type Postprint Article en_US

Files in this item

This item appears in the following Collection(s)

Show simple item record