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Bayesian Switching Volatility Models for Analysing Stock Returns in Ghana

Author

Listed:
  • Akurugu Edward

    (Department of Statistics, Faculty of Mathematical Sciences, University for Development Studies, Tamale, Ghana)

  • Angbing Irene Dekomwine

    (Department of Statistics, School of Mathematical Sciences, C. K. Tedam University of Technology and Applied Sciences, Navrongo, Ghana)

  • Nasiru Suleman

    (Department of Statistics, School of Mathematical Sciences, C. K. Tedam University of Technology and Applied Sciences, Navrongo, Ghana)

  • Abubakari Abdul Ghaniyyu

    (Department of Statistics, School of Mathematical Sciences, C. K. Tedam University of Technology and Applied Sciences, Navrongo, Ghana)

Abstract

The goal of this research was to use Bayesian switching volatility models to model the stock returns of the GCB, bank in Ghana. Monthly stock prices of GCB bank for the period of 138 months were used for the study. The two-state Markov-Switching GARCH models were used in the study to determine the best model for modelling and forecasting the stock returns. The Deviance Information Criteria was considered when selecting the best model. Based on the Deviance Information Criteria, E-GARCH variance specification with skewed student-t innovation was shown to be appropriate for modelling the stock returns. The estimates of the best model showed the first regime to exhibit the features of “turbulent market conditions” while the second regime exhibits “tranquil market conditions”. The risk analysis finds the best model to generally perform better in estimating both Value-at-Risk and Expected Shortfall at 1% rather than 5%. The study advises investors to invest in GCB bank because of the high returns connected with the stock and the fact that when “turbulent market conditions” arise, the recovery rate for these stocks is faster.

Suggested Citation

  • Akurugu Edward & Angbing Irene Dekomwine & Nasiru Suleman & Abubakari Abdul Ghaniyyu, 2022. "Bayesian Switching Volatility Models for Analysing Stock Returns in Ghana," Statistics, Politics and Policy, De Gruyter, vol. 13(2), pages 235-254, June.
    • Handle: RePEc:bpj:statpp:v:13:y:2022:i:2:p:235-254:n:4
    DOI: 10.1515/spp-2022-0002
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