The Volatility of Pakistan Stock Market: A Comparison of GARCH Type Models With Five Distribution

Naseem, S., Mohsin, M., Zia-ur-Rehman, M., & Baig, S. A. (2018). Volatility of pakistan stock market: A comparison of Garch type models with five distribution. Amazonia Investiga, 7(17), 486-504.

19 Pages Posted: 23 Dec 2019

See all articles by Sobia Salamat

Sobia Salamat

Liaoning Technical University

Gao Lei Fu

affiliation not provided to SSRN

Muhammad Mohsin

Liaoning Technical University

Dr. Muhammad Zia ur Rehman

National Textile University, Faisalabad; International Islamic University, Islamabad

Sajjad Baig

National Textile University

Date Written: 2018

Abstract

This study conducts empirical analyses modeling the volatility of Pakistani stock market over the period of 1st January 2008 to 30th June 2018 via different GARCH type Model; Symmetric (GARCH & GARCH-M) and Asymmetric (EGARCH & TGARCH) with five different Distribution Techniques such as Normal Distribution (Norm), Student’s t Distribution (Std.), Generalized Error Distribution (GED), Student’s t Distribution with fix the degree of freedom (Std. with fix DOF) and Generalized Error Distribution with fix parameters (GED with fix parameters). The results are shown in GARCH (1, 1) lagged conditional variance and squared disturbance which effects conditional variance is significant in all distribution. GARCH-M (1, 1) depicts a positive significant at 1% results in Std. and GED which indicates the existence of risk premium and insignificant in rest of the distribution on. EGARCH and TGARCH both are found to leverage effect significant at 1% level. In determining the accuracy and adequacy of forecasting density and choice of volatility model the results on simulated data indicates choice of conditional distribution appear as a more dominant factor. EGARCH model with Student’s t the distribution technique is delivered satisfactory results as compare to other models which censored by statistical tools of maximum Log Likelihood, minimum AIC, and SIC. The previous study of Pakistani Stock Market is limited to GARCH family models with one or two distributions. This study covers the limitations and also contributes existing literature in this regard. This research is considered important for investors, policymakers, and researchers.

Keywords: volatility, stock market, GARCH model, investor, economic

JEL Classification: F30

Suggested Citation

Salamat, Sobia and Fu, Gao Lei and Mohsin, Muhammad and Zia ur Rehman, Muhammad and Baig, Sajjad, The Volatility of Pakistan Stock Market: A Comparison of GARCH Type Models With Five Distribution (2018). Naseem, S., Mohsin, M., Zia-ur-Rehman, M., & Baig, S. A. (2018). Volatility of pakistan stock market: A comparison of Garch type models with five distribution. Amazonia Investiga, 7(17), 486-504., Available at SSRN: https://ssrn.com/abstract=3498468

Sobia Salamat

Liaoning Technical University ( email )

No. 188, Longwan South Street
Huludao, Liaoning 125105
China

Gao Lei Fu

affiliation not provided to SSRN

Muhammad Mohsin

Liaoning Technical University

No. 188, Longwan South Street
Huludao, Liaoning 125105
China

Muhammad Zia ur Rehman (Contact Author)

National Textile University, Faisalabad ( email )

Sheikhupura Road, Faisalabad
Faisalabad, Punjab 38000
Pakistan

International Islamic University, Islamabad ( email )

Islamabad, 44000
Pakistan

Sajjad Baig

National Textile University ( email )

National Textile University
Faisalabad, Punjab 38000
Pakistan

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