Determinism and Non-linear Behaviour of Log-return and Conditional Volatility: Empirical Analysis for 26 Stock Markets. (June 2022)

• Record Type: Journal Article
• Authors: Dhifaoui, Zouhaier
• Is Part Of: South Asian journal of macroeconomics and public finance. Volume 11:Number 1(2022)
• Page Start: 69
• Page End: 94
• Publication Date: 2022-06
• Subjects: Correlation dimension -- normalized non-linear prediction error -- surrogates data method -- ARCH model; Macroeconomics -- Periodicals; Finance, Public -- Periodicals; Finance, Public -- South Asia -- Periodicals; Economics -- Periodicals; Public Sector -- economics -- Periodicals; 339.0954
• DOI: 10.1177/2277978721995654
• Languages: English
• ISSNs: 2277-9787

Abstract

Determinism and non-linear behaviour in log-return and conditional volatility time series of the stock market index is examined for twenty-six countries. For this goal, the principal statistical techniques used in this study are a robust estimator of correlation dimension, a normalized non-linear prediction error, and pseudo-periodic surrogate data method. The proposed approach indicates, first, the stochastic behaviour of all log-return time series. Second, the inability of local linear, ARMA, or state- dependent noise models (such as ARCH, GARCH, and EGARCH) to describe its structure for the frontier, emerging, and developed markets. The same stochastic behaviour of conditional volatility time series, estimated by the stochastic volatility model with moving average innovations, is detected. This finding proves the efficiency of the stochastic volatility model compared with some analysed types of GARCH models for all studied markets. JEL Classification: C12, C52, D53, E44