Modeling and forecasting Egyptian stock market volatility before and after price limits

Abstract EN

This paper investigates the impact of price limits on volatility dynamics in the Egyptian Stock Exchange.

A variety of mean and variance specifications in GARCH type models (GARCH, EGARCH, GJR, and APARCH), and four different error distributions (Normal, Student-t, GED, and Skewed-t) are utilized.

Results from examining a split sample suggest significant changes in the time varying volatility process.

In-sample results, prior to the imposition of price limits exhibit leptokurtosis, yet showing no sign of the widely cited leverage effect.

In-sample results, after the imposition of price limits display both leptokurtosis and the leverage effect.

Out-of-sample forecasts depict the leverage effects, when present, but provide conflicting results regarding the distribution.