VOLATILITY IN STOCK RETURN SERIES OF VIETNAM STOCK MARKET

Abstract

This paper studies the features of the stock return volatility using GARCH models and the presence of structural breaks in return variance of VNIndex in the Vietnam stock market by using the iterated cumulative sums of squares (ICSS) algorithm. Using a long-span data, GARCH and GARCH in mean (GARCH-M) models seems to be effective in describing daily stock returns’ features. About structural breaks, when applying ICSS to standardized residuals filtered from GARCH (1, 1) model, the number of volatility shifts significantly decreases in comparison with the raw return series. Events corresponding to those breaks and altering the volatility pattern of stock return are found to be country-specific. Not any shifts are found during global crisis period. Further evidence also reveals that when sudden shifts are taken into account in the GARCH models, volatility persistence remarkably reduces and that the conditional variance of stock return is much affected by past trend of observed shocks and variance. Our results have important implications regarding advising investors on decisions concerning pricing equity, portfolio investment and management, hedging and forecasting. Moreover, it is also helpful for policy-makers in making and promulgating the financial policies.