Forecasting volatility of Saudi stock market (TASI) and sectoral indices
by Sunitha Kumaran
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 13, No. 6, 2023

Abstract: Volatility can be regarded as a coercing factor and is a key input in investment decisions. In this study, the volatility clustering behaviour, volatility persistence and leverage effect of the daily returns in the Saudi Stock Market Composite Index (TASI) and 16 sectoral indices were analysed using the asymmetry GARCH models. The long-term volatility forecast was done for an out of sample period of one year. The results provide strong evidence of the existence of conditional heteroscedasticity in the returns, suggesting that past news about volatility and lagged conditional variance has a significant impact on the daily volatility. The high degree of persistence indicates explosive volatility. The leverage effect coefficient signals that the impact of bad news on the current period of volatility is heavier than that of good news. The forecast long-term daily volatility is expected to be high for media and entertainment industry and low for materials sector.

Online publication date: Mon, 06-Nov-2023

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