Evaluated the Success of Fractionally Integrated-GARCH Models on Prediction Stock Market Return Volatility in Gulf Arab Stock Markets

Abstract

Abstract:This paper evaluated the different Fractionally Integrated-GARCH Models (FIGARCH BBM's, FIGARCH Chung, FIEGARCH, FIAPARCH BBM's, FIAPARCH Chung, and HYGARCH). This is the first research to use six different Fractionally Integrated-GARCH Models. Most research compares one of Fractionally Integrated-GARCH Models with the traditional GARCH, EGARCH, GJG-GARCH, IGARCH, and APGARCH. To do so, daily returns of Gulf Cooperation Council (GCC) Stock Markets analyzed, covering the period 1995 to 2015. Both the Superior Predictive Ability and the Model Confidence Set tests were used to identify the best fitting models of each country. The results reveal that FIGARCH BBM is the best fitting model for UAE, KSA, and Bahrain. FIEGARCH is the best fitting model for Kuwait. FIGARCH Chung is the best fitting model for Qatar. Only the results for Oman were mixed between FIGARCH BBM and FIAPARCH BBM models.

Mean reversion in international markets: evidence from G.A.R.C.H. and half-life volatility models

“…Therefore, the mean reversion phenomenon provides an opportunity to investors to forecast the future values of the equity returns on the basis of past values. These findings are also consistent with previous literature (Al-Hajieh, 2017;Chaudhuri & Wu, 2003;Chaves & Viswanathan, 2016;Chen et al, 2012;Mohammadi, 2017;Riaz, 2014). The results of the present study further determined the speed of mean reversion of emerging and developed stock markets by using the half-life method.…”

“…The random walk is an alternative terminology for the efficient market hypothesis; it is very complicated to explore the undervalued stock, and to predict whether the stock can perform more strongly in the future (Mishra, 2017;Tripathy, 2017;Wang et al, 2015;Zakamulin, 2016). According to Al-Hajieh (2017) and Dupernex (2007), this unpredictability no longer exists for the equity returns. In the light of previous theories, several researchers have carried out their studies in order to understand the global financial markets turmoil of 2007-08.…”

“…Hence, it can be believed that the mean-reverting process is the by-product of risk aversion, expediency prejudice and attraction of lower equity prices (Mohammadi, 2017;Al-Hajieh, 2017;Oikarinen & Schindler, 2015;Tie & Zhang, 2016). The foremost factor which creates the mean reversion development is the obtainability prejudice of the market, and investors' tendency to take their decisions on the basis of available information (Gimpel, 2007).…”