Stock Market Volatility in Saudi Arabia: An Application of Univariate GARCH Model

Abstract

Study of stock market volatility has been the focus of financial economics. Modelling stock market volatility has great contributions to make in the areas of portfolio management, asset allocation, risk management, etc. We estimate the conditional volatility of Saudi stock market by applying AR (1)-GARCH (1, 1) model to the daily stock returns data spanning from August 1, 2004 to October 31, 2013. We show that a linear symmetric GARCH (1, 1) model is adequate to estimate the volatility of the stock market of the country. We find that Saudi stock market returns are characterised by volatility clustering and follow a non-normal distribution. Saudi stock market returns show a time varying volatility, show persistence and are predictable. Past volatility impacts the current period volatility and past returns play a role in determining the current period return. Saudi stock market is nervous in its reactions to market fluctuations. This finding of the study offer important input into the decisions relating to asset allocation and risk management strategies of investors and treasury managers in Saudi stock market.

The Impact of Unanticipated Political Events on Stocks Market Returns: Empirical Evidences From Saudi Arabia

“…More importantly, the levels of information that the market may have received on a daily basis are different, and thus the market loses its efficiency that it is supposed to have. Indeed, these results supported by study of Kalyanaraman, (2014)asset allocation, risk management, etc. We estimate the conditional volatility of Saudi stock market by applying AR (1.…”

“…Since decades ago, there many studies discussed stock market volatility widelyin developed and emerging markets over the world (Baillie & DeGennaro, 1990). However, the context of the Saudi stock market showed a lack of specialized studies and research, only few studies conducted (Brailsford & Robert, 1966;Kalu O. Emenike, 2010;Kalyanaraman, 2014;Tse, 1991)asset allocation, risk management, etc. We estimate the conditional volatility of Saudi stock market by applying AR (1, and thus making the outlook relatively difficult.…”

“…The Saudi Stock Market is known as Tadawul All Share Index (TASI), and its existence dates back to the 1970s when it emerged informally (Kalyanaraman, 2014)asset allocation, risk management, etc. We estimate the conditional volatility of Saudi stock market by applying AR (1.…”

“…Studies attempted to focus accurately on the interaction of financial markets with the news received and their ability to deal with them. In the case of Saudi Arabia, studies of market performance assessment and its sensitivity towards different news were truly rare and few (Kalyanaraman, 2014)asset allocation, risk management, etc. We estimate the conditional volatility of Saudi stock market by applying AR (1.…”

Intraday return volatility in Saudi Stock Market: An evidence from Tadawul All Share Index

“…Further, there are few number of studies on Saudi stock market return and volatility. The stock returns of Saudi stock market are characterized by time varying volatility, and also the market is too sensitive to market fluctuations (Kalyanaraman, 2014). Badshah et al (2016) examined the asymmetries in the intraday return and volatility.…”