Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock Market
Volatility is the degree of variation in the stock price over time. The stock price is volatile due to many factors, such as demand, supply, economic policy, and company earnings. Investing in a volatile market is riskier for stock traders. Most of the existing work considered Generalized Auto-regre...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
MDPI AG
2021-07-01
|
| Series: | Mathematics |
| Subjects: | |
| Online Access: | https://www.mdpi.com/2227-7390/9/14/1595 |
| _version_ | 1797526682202013696 |
|---|---|
| author | Nagaraj Naik Biju R. Mohan |
| author_facet | Nagaraj Naik Biju R. Mohan |
| author_sort | Nagaraj Naik |
| collection | DOAJ |
| description | Volatility is the degree of variation in the stock price over time. The stock price is volatile due to many factors, such as demand, supply, economic policy, and company earnings. Investing in a volatile market is riskier for stock traders. Most of the existing work considered Generalized Auto-regressive Conditional Heteroskedasticity (GARCH) models to capture volatility, but this model fails to capture when the volatility is very high. This paper aims to estimate the stock price volatility using the Markov regime-switching GARCH (MSGARCH) and SETAR model. The model selection was carried out using the Akaike-Informations-Criteria (AIC) and Bayesian-Information Criteria (BIC) metric. The performance of the model is evaluated using the Root mean square error (RMSE) and mean absolute percentage error (MAPE) metric. We have found that volatility estimation using the MSGARCH model performed better than the SETAR model. The experiments considered the Indian stock market data. |
| first_indexed | 2024-03-10T09:33:47Z |
| format | Article |
| id | doaj.art-d6e9a22a85ad4921823c13bb35041aa2 |
| institution | Directory Open Access Journal |
| issn | 2227-7390 |
| language | English |
| last_indexed | 2024-03-10T09:33:47Z |
| publishDate | 2021-07-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj.art-d6e9a22a85ad4921823c13bb35041aa22023-11-22T04:19:17ZengMDPI AGMathematics2227-73902021-07-01914159510.3390/math9141595Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock MarketNagaraj Naik0Biju R. Mohan1National Institute of Technology, Karnataka 575025, IndiaNational Institute of Technology, Karnataka 575025, IndiaVolatility is the degree of variation in the stock price over time. The stock price is volatile due to many factors, such as demand, supply, economic policy, and company earnings. Investing in a volatile market is riskier for stock traders. Most of the existing work considered Generalized Auto-regressive Conditional Heteroskedasticity (GARCH) models to capture volatility, but this model fails to capture when the volatility is very high. This paper aims to estimate the stock price volatility using the Markov regime-switching GARCH (MSGARCH) and SETAR model. The model selection was carried out using the Akaike-Informations-Criteria (AIC) and Bayesian-Information Criteria (BIC) metric. The performance of the model is evaluated using the Root mean square error (RMSE) and mean absolute percentage error (MAPE) metric. We have found that volatility estimation using the MSGARCH model performed better than the SETAR model. The experiments considered the Indian stock market data.https://www.mdpi.com/2227-7390/9/14/1595MSGARCHGARCHconditional distributionstock priceheterogeneous |
| spellingShingle | Nagaraj Naik Biju R. Mohan Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock Market Mathematics MSGARCH GARCH conditional distribution stock price heterogeneous |
| title | Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock Market |
| title_full | Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock Market |
| title_fullStr | Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock Market |
| title_full_unstemmed | Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock Market |
| title_short | Stock Price Volatility Estimation Using Regime Switching Technique-Empirical Study on the Indian Stock Market |
| title_sort | stock price volatility estimation using regime switching technique empirical study on the indian stock market |
| topic | MSGARCH GARCH conditional distribution stock price heterogeneous |
| url | https://www.mdpi.com/2227-7390/9/14/1595 |
| work_keys_str_mv | AT nagarajnaik stockpricevolatilityestimationusingregimeswitchingtechniqueempiricalstudyontheindianstockmarket AT bijurmohan stockpricevolatilityestimationusingregimeswitchingtechniqueempiricalstudyontheindianstockmarket |