Volatility in Stock Markets: A Comparison of Developed and Emerging Markets of the World

Sonali Agarwal .

Abstract


Volatility in markets is the growing area of crucial attention which is being analysed by many academicians over the world. The reason being that with the passage of time, the probability of deviation of the prices from the initial intrinsic value increases. In this research we have tried to model the volatility of two indices: MSCI emerging markets index and MSCI world index with the use of ARCH and GARCH models. The volatility clustering and ARCH effect were seen and the models were constructed.  Both the ARCH and GARCH terms were found to be significant in both the market indices. It was found that in emerging markets, yesterday’s volatility had greater influence in explaining today’s volatility while in case of developed markets, both yesterday’s volatility and information had immense influence in explaining today’s volatility.  The information is of immense use to the finance professionals and investors and can help them in taking correct portfolio decisions.


Keywords


ARCH, GARCH, volatility, developed markets, emerging markets, MSCI index

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References


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