Munich Personal RePEc Archive

Stock Returns Volatility in an Emerging Market: The Pakistani Evidence

Husain, Fazal and UPPAL, Jamshed (1999): Stock Returns Volatility in an Emerging Market: The Pakistani Evidence. Published in: Pakistan Journal of Applied Economics , Vol. 15, No. 1 (1999): pp. 19-40.

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Abstract

This paper examines stock returns volatility in the Pakistani equity market. Using daily stock prices of 36 companies, 8 sector indices, and the general market index, the AutoRegressive Conditional Heteroscedasticity (ARCH) class of models was applied. The analyses suggest that one of the factors causing high serial dependence in stock returns in the Pakistani equity market is the presence of conditional heteroscedasticity or volatility in stock returns and that even after controlling for volatility the returns in the market are, in general, predictable. The results show GARCH(1,1) to be an appropriate representation of conditional variance implying that current volatility in the market is significantly affected by the past volatilities. There is also strong evidence of persistence in variance in returns implying that shocks to volatility continue for a long period. However, after accounting for the structural shift due to opening of the market, the persistence was found to decline significantly.

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