Empirical analysis of stock returns and volatility: evidence from Asian stock markets

Abstract

The objective of this research isto measure and examine volatilities among important stock markets of Asia and to ascertain a causal relation between volatility and stock returns. For this purpose six markets KSE100 (Karachi, Pakistan), BSE Sensex (Mumbai, India), NIKKEI 225 (Tokyo, Japan), Hang Seng (Hong Kong), Shanghai Stock Exchange (SSE) (Shanghai, China) and KOSPI (Seoul, South Korea) were considered. Stock market indices comprise of daily data from the period January 2002 to December 2009. The graphical representation of time series shows the preliminary examination of stock behaviors. The analysis shows the high correlation and heteroskedastic trend (volatility) among the stock markets in selected time period. After preliminary analysis the formal descriptive method of mean, standard deviation and coefficient of variation have been applied for measuring and ranking purposes. The results show that KOSPI has the highest average annual return of 12.67% and followed by BSE with 11.61%, whereas, KSE 100 has the least annual average returns of 9.31%. The highest volatility coefficient of 3.097 has been observed in Hang Seng (Hong Kong) followed by 2.87 in Nikkei (Tokyo). However, the KSE 100 observed the lowest volatility coefficient of 2.078. Bartlett’s test is applied for the inferential analysis to investigate whether the equality of volatility is the same in each market return. Finally, GARCH (1, 1) model is applied which concludes a significant ARCH (1) and GARCH (1) effects and confirms all markets’ returns are statistically significant since p < 0.01 and their Long Run Average Variances (LRAV) range from 1.52% to 2.54% for KSE100 Index and Shanghai Stock Exchange respectively.

Keywords:

• ARCH
• GARCH
• volatility
• stock returns
• Asian stock markets
• LRAV
• trailing variance

JEL classification:

• C32
• G12
• G15

Additional information

Notes on contributors

Nawaz Ahmad

Nawaz AHMAD is Visiting Professor at Department of Business Administration at Iqra University (Pakistan); He obtained his MBA & M.Phil. (Economics) from SZABIST University, Karachi. He is also an independent researcher and Editor of a Journal for last 15 years. During his broad research career of more than 15 years, he mainly focused on macro & microeconomics related issues of Pakistani economy, his research expertise area are macroeconomic indicators, study of stock prices and its behavior, comparison of financial security markets by using Time Series analysis models, Multivariate Regression models, and other Econometrics models. Besides, he also made a significant contribution of research for private sector employees’ and Organizational related issues; he used quantitative models for these studies.

Rizwan Raheem Ahmed

Rizwan RAHEEM AHMED is a Professor at Institute of Business Administration & Commerce at Indus University (Pakistan); He obtained his PhD from Hamdard University, and MS (Economics) from SZABIST University, Karachi. He is also an independent consultant for the Pharmaceutical Industry for last several years. During his thorough research career of more than 12 years, he mainly focused on marketing strategy, Organizational performance, behavior of Stocks, money market portfolios and Liquidity market problems by using Time Series analysis models, Multivariate Regression, CFA & EFA models. Besides, he also made a significant research in current issues related to Sales & Marketing of local and global Pharmaceutical Industry; he used quantitative & qualitative models for this purpose.

Jolita Vveinhardt

Jolita VVEINHARDT is a Chief Researcher at the Institute of Sports Science and Innovations of Lithuanian Sports University and Professor at the Faculty of Sport Education of Lithuanian Sports University. Her research activity is focused on mobbing in employee relations, organisational climate, nepotism as a management anomaly, values congruence, human resource management, corporate social responsibility, the knowledge-based economy. Her publications have appeared in the Journal of Business Economics and Management, Transformations in Business and Economics, Engineering economics and Problems and Perspectives in Management among others.

Dalia Streimikiene

Dalia STREIMIKIENE is a Chief Researcher at the Institute of Sports Science and Innovations of Lithuanian Sports University. Her research activity is focused on macroeconomic environment of business, macroeconomic policies and measures, sustainable development, climate change mitigation issues and human resource management issues. She has experience in various projects and research studies dealing with sustainability assessment.