The volatility model of the ASEAN Stock Indexes

Abstract

This research study examines the characteristics of the Association of Southeast Asian Nations (ASEAN) volatility of stock indexes. The following models are used in this research: Generalized Autoregressive Conditional Heteroscedasticity (GARCH), Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH), Fractionally Integrated Generalized Autoregressive Conditional Heteroscedasticity (FIGARCH), Glosten Jaganathan Runkle Generalized Autoregressive Conditional Heteroscedasticity (GJR-GARCH), and Multifractal Model of Asset Return (MMAR). The research also used the data from the ASEAN country members’ (the Philippines, Indonesia, Malaysia, Singapore, and Thailand) stock indexes for the period from January 2002 until 31 January 2016 to determine the suitable model.Meanwhile, the results of the MMAR parameter showed that the returns of the countries have a characteristic called long-term memory. The authors found that the scaling exponents are associated with the characteristics of the specific markets including the ASEAN member countries and can be used to differentiate markets in their stage of development. Finally, the simulated data are compared with the original data by scaling function where most of the stock markets of the selected ASEAN countries have long-term memory with the scaling behavior of information asymmetry. Some of the countries such as the Philippines and Indonesia have their own alternative models using GARCH and EGARCH due to the possibility of leverage. Generally, MMAR is the best model for use in ASEAN market, because this model considered Hurst exponent as a parameter of long-term memory that indicates persistent behavior.

Risk Diversification in Asean-5 Financial Markets: An Empirical Analysis in the Context of the Global Pandemic (Covid-19)

“…This situation has implications for investors, since some returns can be expected, creating opportunities for arbitrage and abnormal earnings, contrary to assumed by the hypotheses of random walk and informational efficiency. These results are in line with the evidence suggested by the authors Sanusi, Singagerda, and Septarina (2019) that indicate the presence of long memories in the ASEAN markets, which may be beneficial for investors, as these markets show some predictability. 3).…”

“…Hung (2019) shows that the volatility of the Chinese market has had a significant impact on other markets, suggesting that the stock markets are more integrated due to the financial crisis. However, the authors Sanusi, Singagerda, and Septarina (2019) demonstrate the presence of long memories in ASEAN markets, which may be beneficial for investors, as these markets show some predictability. Wu (2019) suggests that integration is not accentuated in the stock markets of East and Southeast Asia, although the governments of that region are promoting financial integration in these regional markets.…”

“…However, the last few years have been characterised by a marked level of integration financial. Hung (2019), Wu (2019), Sanusi, Singagerda, and Septarina (2019), investigated risk diversification in Asian markets. Hung (2019) shows that the volatility of the Chinese market has had a significant impact on other markets, suggesting that the stock markets are more integrated due to the financial crisis.…”

Volatility Transmission Between ASEAN-5 Stock Exchanges

“…Currently, the variance of asset prices (volatility) is likely, one of the most important information for financial market investors. In times of uncertainty and turbulence in the financial markets, its correct forecast allows profitability strategies' anticipation for shares affected by performance of the issuing company, as well as, by the economic conjuncture (Sanusi, Singagerda, and Septarina, 2019;Vu, 2019). Oh et al (2010), Nartea, Ward, and Yao (2011), Tan, Wong, and Elshareif (2015), Li and Giles (2015), Lee and Goh (2016), Caporale et al (2017) analyzed the volatility among ASEAN stock exchanges.…”

“…Thus, capital control mechanisms may be effective tools to stabilize the foreign exchange market, in countries where flows affect exchange rate volatility. Shen (2018), Saiti and Noordin (2018), Hung (2019), Sanusi, Singagerda, and Septarina (2019), Vu (2019) examined the profitability and volatility spillovers amongst international markets and major Asian stock exchanges. Shen (2018) evidences the existence of volatility spillovers from the U.S. to the major Asian stock exchanges, suggesting that these are highly integrated stock exchanges, in terms of risk transmission.…”