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Volatility Shifts and Persistence in Variance: Evidence from the Sector Indices of Istanbul Stock Exchange

Author

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  • Efe Çağlar Çağli

    (Dokuz Eylul University, Faculty of Business Administration, Department of Finance, Kaynaklar Campus, 35160 Izmir, Turkey)

  • Pinar Evrim Mandaci

    (Dokuz Eylul University, Faculty of Business Administration, Department of Finance, Kaynaklar Campus, 35160 Izmir, Turkey)

  • Pinar Hakan Kahyaoğlu

    (Dokuz Eylul University of Economics and Administrative Sciences, Department of Economics, Dokuzcesmeler Campus, 35160 Izmir, Turkey)

Abstract

This study examines the impact of volatility shifts on volatility persistence for three major sector indices of Istanbul Stock Exchange (ISE) and ISE National 100 index over the period beginning from 1997 and ending in 2009. The exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model is extended by taking account of the volatility shifts which are determined by using iterated cumulative sums of squares (ICSS) and modified ICSS algorithms such as Kappa-1 (κ-1) and Kappa-2 (κ-2). The results indicate that the inclusion of volatility shifts in the model substantially reduces volatility persistence and suggest that the sudden shifts in volatility should not be ignored in modelling volatility for Turkish sector indices.

Suggested Citation

  • Efe Çağlar Çağli & Pinar Evrim Mandaci & Pinar Hakan Kahyaoğlu, 2011. "Volatility Shifts and Persistence in Variance: Evidence from the Sector Indices of Istanbul Stock Exchange," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 4(3), pages 119-140, December.
    • Handle: RePEc:tei:journl:v:4:y:2011:i:3:p:119-140
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    Cited by:

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    More about this item

    Keywords

    Stock return volatility; volatility shifts; persistence; Turkish stock market;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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