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Determination Of Volatility And Mean Returns: An Evidence From An Emerging Stock Market

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  • KIANI, Khurshid M.
Abstract
In the present research we work with excess returns for an emerging stock market i.e. Jamaican Stock Price Index for the determination of volatility persistence and persistence in the mean returns series. We model excess returns in this stock market using state space or unobserved component models, which is a signal extraction approach. Our model encompass stable distributions to account for fat tails and GARCH-like effects to account for time varying volatility that may be present in the series. The study results that are obtained using the most general as well as the restricted versions of the state space models reveal statistically significant evidence of volatility persistence in the excess returns series. Further, there exist persistent predictable signals in returns series at 5 percent level of significance, and the value of an efficiently estimated excess returns series is percent per month (percent per annum). Further, the series encompass a stable characteristic exponent of showing a non-normal behavior in this market.

Suggested Citation

  • KIANI, Khurshid M., 2007. "Determination Of Volatility And Mean Returns: An Evidence From An Emerging Stock Market," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 4(1), pages 103-118.
    • Handle: RePEc:eaa:ijaeqs:v:4:y2007:i:1_7
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    More about this item

    Keywords

    stock return predictability; unobserved components; fat tails; stable distributions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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