Can market volume help in predicting share market volatility

Hagba, Dorbor M. (2007-12)

Thesis (MBA)--University of Stellenbosch, 2007.

Thesis

ENGLISH ABSTRACT: This paper explores a number of statistical models for predicting the daily stock return volatility of an aggregate of all stocks traded on the Johannesburg Stock Exchange (JSE). The study is largely inspired by the work of Chris Brooks (1998). The volume of shares traded might be as important as the change in a market index since substantial price increases and decreases are often accompanied by heavy trading activity. An application of linear and non-linear Granger causality tests highlights evidence of bidirectional causality, although the relationship is stronger from volatility to volume than from volume to volatility. The out-of-sample forecasting performance of various linear and non-linear models of volatility are evaluated and compared. The models are also augmented by the addition of a measure of lagged volume to form more general ex-ante forecasting models. The results indicate that augmenting models of volatility with measures of lagged volume leads only to fairly small improvements in forecasting performance. The report also shows that the Johannesburg Stock Exchange is vulnerable to financial turmoil in other major markets.

AFRIKAANSE OPSOMMING: Hierdie navorsingsverslag verken 'n aantal statistiese modelle vir die vooruitskatting van die daaglikse onbestendigheid in aandeleopbrengste van die totaal van alle aandele wat op die Johannesburgse Aandelebeurs (JSE) verhandel word. Hierdie studie is grotendeels geinspireer deur die werk van Chris Brooks (1998). Die volume aandele wat verhandel word, kan net so belangrik wees soos die verandering in 'n markindeks omdat beduidende prysverhogings en -verlagings dikwels met swaar verhandelingsaktiwiteite gepaard gaan. 'n Toepassing van liniere en nie-liniere Grangeroorsaaklikheidstoetse lewer bewys van tweerigting-oorsaaklikheid, hoewel daar 'n sterker verband van onbestendigheid na volume is, as van volume na onbestendigheid. Die buite-steekproef vooruitskattingsprestasie van verskeie liniere en nie-liniere modelle van onbestendigheid word geevalueer en vergelyk. Die modelle word aangevul deur die byvoeging van gesloerde volumes om meer algemene vooruitskattingsmodelle te vorm. Die resultate dui daarop dat aangevulde modelle van onbestendigheid met sloerings in volume slegs tot betreklik klein verbeteringe in vooruitskattingsprestasie lei. Die resultate dui daarop dat die Johannesburgse Aandelebeurs kwesbaar is vir finansiele turbulensie in ander belangrike markte.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/15043
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