A Generalized Autoregressive Conditional Heteroskedasticity Model of the Impact of Macroeconomic Factors on Stock Returns: Empirical Evidence from the Nigerian Stock Market

Purpose of the study: Stock markets have demonstrated varying reactions to IMF lending announcements across various economies. Announcements offered by IMF often be perceived negatively by the participants of the stock market, because of stringent conditions accompanied with the loan that may oppose the political and economic agenda of a borrowing nation. Thus, this study intends to investigate the impact of IMF’s announcements about extending loans to Pakistan on the performance of the Stock market in the debt-ridden economy. Methodology: For regular returns from 1997 to 2017, the benchmarking indexes of KSE-100 and 30 were used. Meanwhile, IMF lending arrangements are categorized into three respective dummies (standby, extended credit facility, and extended fund facility). The Generalized Autoregressive Conditional Heteroscedastic (GARCH) model was used to investigate the effect of IMF’s lending news on the regular stock returns. Main findings: The results show a statistically significant effect of the IMF’s News about lending arrangements on the performance of the stock market in Pakistan. Surprisingly, the negative effect of IMF lending announcements on the performance of the stock market in Pakistan implies that the loans extended by IMF are not professed by speculators as good for the economic performance of the economy. Application of this study: The findings of this study imply that simply extending loans is not a panacea for politically unstable and financially ruined nations. Lending strategies of IMF need to be favourable for the political and economic conditions of a borrowing country. Originality/ Novelty: As for as the novelty is concerned, the study has highlighted the time-varying impact of IMF lending announcements on the performance of the stock market in a financially fragile country where a newborn government facing multiple challenges has made its best effort to avoid borrowing from IMF.

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Are Kuwaiti Stock Returns Affected by Fluctuations in Oil Prices?

International Journal of Financial Research ◽

10.5430/ijfr.v11n6p1 ◽

2020 ◽

Vol 11 (6) ◽

pp. 1

Author(s):

Salem Alshihab ◽

Nayef AlShammari

Keyword(s):

Stock Market ◽

Stock Returns ◽

Oil Prices ◽

Market Returns ◽

Macroeconomic Factors ◽

Stock Market Returns ◽

Long Run ◽

Short Run ◽

The Impact ◽

Adf Test

This paper examines the impact of fluctuations in the price of oil on Kuwaiti stock market returns for the month-to-month period of 2000 to 2020. The Augmented Dickey-Fuller (ADF) test for stationarity, the error correction model (ECM), and various cointegration test techniques were used to examine the estimated model. In an oil-based economy like Kuwait, the exposure to oil prices seems to affect the performance of the country’s stock market. Our main findings related to the long run showed that the price of oil is cointegrated with stock market returns. Interestingly, our ECM examination confirmed that changes in Kuwaiti stock market returns are only affected by oil price fluctuations in the short run. Further strategies are needed to better stabilize Kuwait’s capital market. This equilibrium can be achieved by pursuing more stability in other macroeconomic factors and providing a solid legal independence for the country’s financial market.

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The Impact of the COVID-19 Pandemic on the U.S. Economy: Evidence from the Stock Market

Journal of Risk and Financial Management ◽

10.3390/jrfm13100233 ◽

2020 ◽

Vol 13 (10) ◽

pp. 233

Author(s):

Willem Thorbecke

Keyword(s):

Real Estate ◽

Stock Market ◽

Stock Returns ◽

Electrical Equipment ◽

Production Equipment ◽

Macroeconomic Factors ◽

Specific Factors ◽

The Impact ◽

Macroeconomic Environment ◽

The U.S

The coronavirus crisis has damaged the U.S. economy. This paper uses the stock returns of 125 sectors to investigate its impact. It decomposes returns into components driven by sector-specific factors and by macroeconomic factors. Idiosyncratic factors harmed industries such as airlines, aerospace, real estate, tourism, oil, brewers, retail apparel, and funerals. There are thus large swaths of the economy whose recovery depends not on the macroeconomic environment but on controlling the pandemic. Macroeconomic factors generated losses in industries such as production equipment, machinery, and electronic and electrical equipment. Thus, reviving capital goods spending requires not just an end to the pandemic but also a macroeconomic recovery.

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GARCH AND VOLUME EFFECTS IN THE AUSTRALIAN STOCK MARKETS

Annals of Financial Economics ◽

10.1142/s2010495209500055 ◽

2009 ◽

Vol 05 (01) ◽

pp. 0950005 ◽

Cited By ~ 3

Author(s):

JINGLIANG XIAO ◽

ROBERT D BROOKS ◽

WING-KEUNG WONG

Keyword(s):

Stock Returns ◽

Firm Size ◽

Trading Volume ◽

Explanatory Power ◽

Garch Model ◽

Conditional Heteroskedasticity ◽

Autoregressive Conditional Heteroskedasticity ◽

The Impact ◽

Daily Returns ◽

Volume Effects

This paper explores the relationship between volume and volatility in the Australian Stock Market in the context of a generalized autoregressive conditional heteroskedasticity (GARCH) model. In contrast to other studies who only examine the interaction of GARCH and volume effects on a small number of stocks, we examine these effects on the entire available data for the Australian All Ordinaries Index. We also emphasize on the impact of firm size and trading volume. Our results indicate that GARCH model testing and estimation is impacted by firm size and trading volume. Specifically, our analysis produces the following major findings. First, generally, daily trading volume, used as a proxy for information arrival time, is shown to have significant explanatory power regarding the variance of daily returns. Second, the actively traded stocks which may have a larger number of information arrivals per day have a larger impact of volume on the variance of daily returns. Third, we find that low trading volume and small firm lead to a higher persistence of GARCH effects in the estimated models. Fourth, unlike the elimination effect for the top most active stocks, in general, the elimination of both autoregressive conditional heteroskedasticity (ARCH) and GARCH effects by introducing the volume variable on all other stocks on average is not as much as that for the top most active stocks. Fifth, the elimination of both ARCH and GARCH effects by introducing the volume variable is higher for stocks in the largest volume and/or the largest market capitalization quartile group. Our findings imply that the earlier findings in the literature were not a statistical fluke and that, unlike most anomalies, the volume effect on volatility is not likely to be eliminated after its discovery. In addition, our findings reject the pure random walk hypothesis for stock returns.

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Short selling regulation, return volatility and market volatility in the Athens Exchange

Studies in Economics and Finance ◽

10.1108/sef-06-2015-0157 ◽

2017 ◽

Vol 34 (1) ◽

pp. 82-104 ◽

Cited By ~ 2

Author(s):

Charilaos Mertzanis

Keyword(s):

Stock Market ◽

Stock Returns ◽

Empirical Evidence ◽

Market Price ◽

Short Selling ◽

Market Volatility ◽

Short Sales ◽

Content Type ◽

Regulation Policy ◽

The Impact

Purpose The relationship between short selling, market volatility and liquidity remains an object of intensive research. However, empirical evidence is yet to provide a conclusive elucidation of this relationship by examining aspects of market fragmentation in the form of different market settings, different timing and different stocks under coverage, among others. This paper aims to contribute to the debate by investigating the impact of short selling on market volatility and liquidity in the Athens Exchange (ATHEX) under three different periods of short sales restrictions. Design/methodology/approach Two hypotheses are tested using econometric methodologies (co-integration and Granger-causality tools). Findings The empirical results indicate that when short selling is allowed, aggregate stock returns are in the short-term more volatile, but the liquidity of the market is not significantly affected. This might be the result of significant imbalances between supply and demand of stock caused by short-selling restrictions, leading to market price fluctuations. Research limitations/implications The analysis of empirical evidence needs further expansion and association with institutional firm-level and country-level elements to provide a more comprehensive understanding of the impact of short selling on market volatility and liquidity. Practical implications Stock market regulation involving short-selling restrictions have different implications according to extent and degree of stringency of the restrictions as well as the market on which they are imposed. That is especially important for the assessment of the market impact of the recent European Union regulation on short selling that has been imposed upon all EU member-States alike. Social implications Financial regulation policy must balance the benefits and costs for retail investors of imposing short-selling restrictions on stock market trading. Originality/value First-time empirical evidence is provided on the impact of short selling regulations on market volatility and liquidity of ATHEX highlighting the potential effectiveness of regulation policy.

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The Impact of the Introduction of Index Futures on the Daily Returns Anomaly in the Ho Chi Minh Stock Exchange

International Journal of Financial Studies ◽

10.3390/ijfs9030043 ◽

2021 ◽

Vol 9 (3) ◽

pp. 43

Author(s):

Loc Dong Truong ◽

H. Swint Friday

Keyword(s):

Stock Returns ◽

Stock Exchange ◽

Least Square ◽

Conditional Heteroskedasticity ◽

Index Futures ◽

Futures Contract ◽

Autoregressive Conditional Heteroskedasticity ◽

Day Of The Week ◽

The Impact ◽

Daily Returns

This study investigated the impact of the introduction of the VN30-Index futures contract on the daily returns anomaly for the Ho Chi Minh Stock Exchange (HOSE). Daily returns of the VN30-Index for the period 6 February 2012 through 31 December 2019 are used in this study to ascertain the new VN30-Index futures contract influence on the day-of-the-week anomaly observed in the HOSE. To test this effect, ordinary least square (OLS), generalized autoregressive conditional heteroskedasticity [GARCH (1,1)] and exponential generalized autoregressive conditional heteroskedasticity [EGARCH (1,1)] regression models were employed. The empirical results obtained from the models support the presence of the day-of-the-week effect for the HOSE during the study period. Specifically, a negative effect was observed for Monday. However, the analysis revealed that the day-of-the-week effect was only present in stock returns for the pre-index futures period, not for the post-index futures period. These findings suggest that the introduction of the VN30-Index futures contract had a significant impact on the daily returns anomaly in Vietnam’s HOSE, providing evidence that the introduction of the index futures contract facilitated market efficiency.

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Does time-varying illiquidity matter for the Indian stock market? Evidence from high-frequency data

Australian Journal of Management ◽

10.1177/03128962211010243 ◽

2021 ◽

pp. 031289622110102

Author(s):

Mousumi Bhattacharya ◽

Sharad Nath Bhattacharya ◽

Sumit Kumar Jha

Keyword(s):

Stock Market ◽

Stock Returns ◽

High Frequency ◽

Jel Classification ◽

Exogenous Shock ◽

Intraday Data ◽

Day Of The Week ◽

Holiday Effects ◽

Indian Stock Market ◽

The Impact

This article examines variations in illiquidity in the Indian stock market, using intraday data. Panel regression reveals prevalent day-of-the-week, month, and holiday effects in illiquidity across industries, especially during exogenous shock periods. Illiquidity fluctuations are higher during the second and third quarters. The ranking of most illiquid stocks varies, depending on whether illiquidity is measured using an adjusted or unadjusted Amihud measure. Using pooled quantile regression, we note that illiquidity plays an important asymmetric role in explaining stock returns under up- and down-market conditions in the presence of open interest and volatility. The impact of illiquidity is more severe during periods of extreme high and low returns. JEL Classification: G10, G12

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RESPONSE OF STOCK MARKET DURING COVID-19 AND 2008 FINANCIAL CRISIS: A COMPARATIVE EVIDENCE FROM BRICS NATIONS

The Singapore Economic Review ◽

10.1142/s0217590821500387 ◽

2021 ◽

pp. 1-24

Author(s):

SANJEEV KUMAR ◽

JASPREET KAUR ◽

MOSAB I. TABASH ◽

DANG K. TRAN ◽

RAJ S DHANKAR

Keyword(s):

South Africa ◽

Financial Crisis ◽

Stock Market ◽

Stock Returns ◽

Stock Markets ◽

2008 Financial Crisis ◽

First Case ◽

Egarch Model ◽

The 2008 Financial Crisis ◽

The Impact

This study attempts to examine the response of stock markets amid the COVID-19 pandemic on prominent stock markets of the BRICS nation and compare it with the 2008 financial crisis by employing the GARCH and EGARCH model. First, average and variance of stock returns are tested for differences before and after the pandemic, t-test and F-test were applied. Further, OLS regression was applied to study the impact of COVID-19 on the standard deviation of returns using daily data of total cases, total deaths, and returns of the indices from the date on which the first case was reported till June 2020. Second, GARCH and EGARCH models are employed to compare the impact of COVID-19 and the 2008 financial crisis on the stock market volatility by using the data of respective stock indices for the period 2005–2020. The results suggest that the increasing number of COVID-19 cases and reported death cases hurt stock markets of the five countries except for South Africa in the latter case. The findings of the GARCH and EGARCH model indicate that for India and Russia, the financial crisis of 2008 has caused more stock volatility whereas stock markets of China, Brazil, and South Africa have been more volatile during the COVID-19 pandemic. The study has practical implications for investors, portfolio managers, institutional investors, regulatory institutions, and policymakers as it provides an understanding of stock market behavior in response to a major global crisis and helps them in taking decisions considering the risk of these events.

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A quantile regression approach to evaluate the relative impact of global and local factors on the MENA stock markets

International Journal of Emerging Markets ◽

10.1108/ijoem-03-2020-0251 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Slah Bahloul ◽

Nawel Ben Amor

Keyword(s):

Stock Market ◽

Quantile Regression ◽

Stock Returns ◽

Stock Markets ◽

Financial Integration ◽

Ordinary Least Squares ◽

Market Returns ◽

Stock Market Returns ◽

Content Type ◽

The Impact

PurposeThis paper investigates the relative importance of local macroeconomic and global factors in the explanation of twelve MENA (Middle East and North Africa) stock market returns across the different quantiles in order to determine their degree of international financial integration.Design/methodology/approachThe authors use both ordinary least squares and quantile regressions from January 2007 to January 2018. Quantile regression permits to know how the effects of explanatory variables vary across the different states of the market.FindingsThe results of this paper indicate that the impact of local macroeconomic and global factors differs across the quantiles and markets. Generally, there are wide ranges in degree of international integration and most of MENA stock markets appear to be weakly integrated. This reveals that the portfolio diversification within the stock markets in this region is still beneficial.Originality/valueThis paper is original for two reasons. First, it emphasizes, over a fairly long period, the impact of a large number of macroeconomic and global variables on the MENA stock market returns. Second, it examines if the relative effects of these factors on MENA stock returns vary or not across the market states and MENA countries.

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Do Indian stock market sentiments impact contemporaneous returns?

South Asian Journal of Business Studies ◽

10.1108/sajbs-06-2018-0064 ◽

2018 ◽

Vol 7 (3) ◽

pp. 332-346

Author(s):

Divya Aggarwal ◽

Pitabas Mohanty

Keyword(s):

Stock Market ◽

Stock Returns ◽

Temporal Dynamics ◽

Stock Exchange ◽

Principal Component ◽

Stock Index ◽

Content Type ◽

Investor Sentiments ◽

Indian Stock Market ◽

The Impact

Purpose The purpose of this paper is to analyse the impact of Indian investor sentiments on contemporaneous stock returns of Bombay Stock Exchange, National Stock Exchange and various sectoral indices in India by developing a sentiment index. Design/methodology/approach The study uses principal component analysis to develop a sentiment index as a proxy for Indian stock market sentiments over a time frame from April 1996 to January 2017. It uses an exploratory approach to identify relevant proxies in building a sentiment index using indirect market measures and macro variables of Indian and US markets. Findings The study finds that there is a significant positive correlation between the sentiment index and stock index returns. Sectors which are more dependent on institutional fund flows show a significant impact of the change in sentiments on their respective sectoral indices. Research limitations/implications The study has used data at a monthly frequency. Analysing higher frequency data can explain short-term temporal dynamics between sentiments and returns better. Further studies can be done to explore whether sentiments can be used to predict stock returns. Practical implications The results imply that one can develop profitable trading strategies by investing in sectors like metals and capital goods, which are more susceptible to generate positive returns when the sentiment index is high. Originality/value The study supplements the existing literature on the impact of investor sentiments on contemporaneous stock returns in the context of a developing market. It identifies relevant proxies of investor sentiments for the Indian stock market.

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