Estimating Return Volatility of Stock Market Indices: The Case of Boursa Kuwait

Abstract

This study empirically investigates the conditional variance (volatility) in the daily returns of Boursa Kuwait’s market index, along with seven sectoral indices, for the period of 13 May 2012 to 1 March 2018. The returns results exhibited leptokurtosis, were skewed left, and were not normally distributed; additionally, there was evidence of ARCH effects. The symmetric GARCH model results demonstrated evidence of volatility clustering and persistence; the GARCH-M model results showed a negative relationship between the indices’ returns and risk. The conditional variance (volatility) is affected by positive shocks, leading to positive asymmetric values of EGARCH and negative asymmetric values of TGARCH. From this, it can be inferred that good news has a greater impact on the volatility of index returns than bad news. The research results are crucial for investors, risk forecasters, and policy makers.