Modeling the egyptian stock market volatility Pre-and post circuit breaker

Abstract EN

Circuit breakers (price limits and trading halts) are regulatory instruments aiming to reduce severe price volatility and provide markets with a cooling-off period.

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, GJR, and APARCH) and four different error distributions (Normal, Student-f, GED, and Skewed-f) are utilized.

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

Results prior to the imposition of price limits exhibit leptokurtosis; yet show no sign of the widely cited leverage effect.

Results after the imposition of price limits display both leptokurtosis and the leverage effect