Volatility of Stock
Abstract
Nowadays it is a key issue to forecast the stock market. Forecasting stock market depends on forecasting the volatility by different linear or non-linear models. The volatility of asset returns is time-varying and predictable, but forecasting the future level of volatility is very difficult. Hence, in this study we have provided a simple, yet highly effective framework for forecasting a stock market by considering the transition probability and long run probability of different classified state of volatility. Using DSE 20 index data for January 2001 to October 2010, this paper has tried to use transition probability and limiting probability to make an idea about the future phenomena of the Dhaka stock exchange.
Introduction
The stock market for an economy, what a clinical thermometer is to a human body, reflects the health of the economy. In an economy with a sizeable private corporate sector, aspects like security price stability, investors’ confidence, stable capital market and general economic development are so interwoven that the state of the economy, especially the investment climate in the country can easily be guessed by a mere review of the behavior of the stock market. There are different financial variables in stock market such stock price, share index etc. This share prices may fall in some situation and may constant or rise in another situation. These move up or down is termed as volatility. A volatile stock would be one that sees very large swings in its stock price. If there is a high volatility in the stock market, i.e. the market is not inconsistent position and the country’s economy will be threatened. Volatility indicates to the fluctuations in security prices that are the function of a variety of factors such as interest rates, industrial production, commodity prices, savings, investments, employment, political and economic developments and stability, technological changes, corporate profits, earnings or dividend, investors’
Nowadays it is a key issue to forecast the stock market. Forecasting stock market depends on forecasting the volatility by different linear or non-linear models. The volatility of asset returns is time-varying and predictable, but forecasting the future level of volatility is very difficult. Hence, in this study we have provided a simple, yet highly effective framework for forecasting a stock market by considering the transition probability and long run probability of different classified state of volatility. Using DSE 20 index data for January 2001 to October 2010, this paper has tried to use transition probability and limiting probability to make an idea about the future phenomena of the Dhaka stock exchange.
Introduction
The stock market for an economy, what a clinical thermometer is to a human body, reflects the health of the economy. In an economy with a sizeable private corporate sector, aspects like security price stability, investors’ confidence, stable capital market and general economic development are so interwoven that the state of the economy, especially the investment climate in the country can easily be guessed by a mere review of the behavior of the stock market. There are different financial variables in stock market such stock price, share index etc. This share prices may fall in some situation and may constant or rise in another situation. These move up or down is termed as volatility. A volatile stock would be one that sees very large swings in its stock price. If there is a high volatility in the stock market, i.e. the market is not inconsistent position and the country’s economy will be threatened. Volatility indicates to the fluctuations in security prices that are the function of a variety of factors such as interest rates, industrial production, commodity prices, savings, investments, employment, political and economic developments and stability, technological changes, corporate profits, earnings or dividend, investors’
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