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Time Series of Return and Volatility

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Risk-Return Relationship and Portfolio Management

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Abstract

The study investigates the presence of conditional heteroskedasticity in time series of US stock market returns, and the asymmetric effect of good and bad news on volatility. Further, the study also analyses the relationship between stock returns and conditional volatility , and standard residuals. The daily opening and closing prices of the S&P 500 and NASDAQ 100 are used for the period January 1990–December 2007. The study applies GARCH (1, 1) and T-GARCH (1, 1) to examine the heteroskedasticity and the asymmetric nature of stock returns, respectively. The results of the study suggest the presence of the heteroskedasticity effect and the asymmetric nature of stock returns. Further, analysing the relationship, the study reports a negative significant relationship between stock returns and conditional volatility . However, the relationship between stock returns and standardized residuals is found to be significant. This study provides a robustness test of the conditional volatility and asymmetric impact of good and bad news. These findings bring out that investors adjust their investment decisions with regard to expected volatility , however, they expect extra risk premium for unexpected volatility .

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This chapter draws from the author’s previous publication, Kumar and Dhankar (2010), originally published in Global Business Review, Vol. 11 No. 1. Copyright © 2010 International Management Institute, New Delhi. All rights reserved. Reproduced with the permission of the copyright holders and the publishers, SAGE Publications India Pvt. Ltd, New Delhi.

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Notes

  1. 1.

    The S & P 1500 is commonly known S & P 1500 Composite Index, is a stock market index of U.S. stocks made by Standard & Poor’s. It includes all stocks of three indices––S & P 500 , S & P 400 and S & P 600.

  2. 2.

    The S &P Global 1200 index is a real time, free-float weighted stock market index of global stocks from Standard & Poor’s. The index covers 31 countries and approximately 70% of global market capitalization. It is comprised of six regional indices––S&P 500 Index; S&P TSX 60 Index (Canada); S&P Latin America 40 Index (Mexico, Brazil, Argentina, Chile); S&P TOPIX 150 Index (Japan); S&P Asia 50 Index (Hong Kong, Korea, Singapore, Taiwan); S&P ASX 50 Index (Australia); S&P Europe 350 Index.

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Authors and Affiliations

  1. Faculty of Management Studies (FMS), University of Delhi, New Delhi, Delhi, India

    Raj S. Dhankar

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  1. Raj S. Dhankar
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Correspondence to Raj S. Dhankar .

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Dhankar, R.S. (2019). Time Series of Return and Volatility. In: Risk-Return Relationship and Portfolio Management. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-3950-5_10

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  • DOI: https://doi.org/10.1007/978-81-322-3950-5_10

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  • Publisher Name: Springer, New Delhi

  • Print ISBN: 978-81-322-3948-2

  • Online ISBN: 978-81-322-3950-5

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