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Nonlinear dynamics: Evidence for a small stock exchange

Author

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  • Martin Scheicher

    (Department of Economics, University of Vienna, Bruennerstr. 72, A-1210 Vienna, Austria)

Abstract

This paper models the main stock index of the Vienna Stock Exchange with daily data from 1986 to 1992. We find that returns are nonnormal and show linear and nonliner dependence. On that basis we compare the fit of alternative specifications of Generalized Autoregressive Conditional Heteroscedasticity (GARCH) to the Markov-Switching approach. The models are evaluated with diagnostic tests on the standardized residuals. We consider evidence for deterministic structures and for infinite variance. Our main result is that a parsimonious model from the GARCH - class can generate the statistical properties of daily returns. The behavior of the two types of models with respect to temporal aggregation is found to differ significantly.

Suggested Citation

  • Martin Scheicher, 1999. "Nonlinear dynamics: Evidence for a small stock exchange," Empirical Economics, Springer, vol. 24(1), pages 45-59.
    • Handle: RePEc:spr:empeco:v:24:y:1999:i:1:p:45-59
    Note: received: January 1996/Final version received: December 1997
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    More about this item

    Keywords

    Stock returns · volatility models · temporal aggregation;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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