Stock Returns and Forecast: Case of Tunisia with ARCH Model

Ben Mbarek Kais^1,

¹University of Manouba, Tunisia

Cite this paper:
Ben Mbarek Kais. Stock Returns and Forecast: Case of Tunisia with ARCH Model. Journal of Finance and Economics. 2015; 3(3):55-60. doi: 10.12691/jfe-3-3-2

Abstract

The forecasts allow you to predict future values of historical time series data. With the possibilities of forecasting, you can make projections of future values based on the values of the past. Using projections, organizations can prepare for the changes in the economic or competitive conditions by analyzing historical time series data to predict performance and future trends. For example, in a supply chain, if the expected demand match the actual demand, significant efficiencies can be achieved in terms of production, distribution and return. Forecasts use various predictive methods based on mathematical algorithms that model the future demand based on historical time series data that can be obtained from queries and tables containing columns of date or time. The overall objective is to choose a method to generate a time series model best fit values of the past, identifying existing data patterns and projecting the model in the future to generate the forecast. The purpose of this article is to analyze the volatility behavior of the Tunisian stock returns series index TSR in daily frequency over January 1984 to June 2010 period. We will present various non linear models for the behavior of these series through the Arch models. However, these processes are based on the assumption of non autocorrelation endogenous variable in long term. In fact, these models have autocorrelation that decay very quickly when the delay increases.

Keywords:
volatility ARCH model Tunisian stock exchange forecasting

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]	ABDALLA, (1997): Exchange Rate and Stock Price Interactions in Emerging Financial Markets: Evidence on India, Korea, Pakistan, and Philippines. Applied Financial Economics, vol. 7, 1997, pp. 25-35.
[2]	ADRIAN PAGAN and ULLAH (1988): The Econometric Analysis Of Models With Risk Terms. Journal Of Applied Econometrics, vol3, N2 p 87-105.
[3]	AGGARWAL, R. (1981): Exchange Rates and Stock Prices: A Study of U. S. Capital Market under Floating Exchange Rates. Akron Business and Economic Review, vol. 12, 1981, pp. 7-12.
[4]	AJAYI, R. A.FRIEDMAN, J. MEHDIAN, S. M.(1998): On the Relationship between Stock Returns and Exchange Rates: Tests of Granger Causality. Global Finance Journal, vol. 9, 1998, pp. 241-251.
[5]	AJAYI, R. A. – MOUGOUE, M. (1996): On the Dynamic Relation between Stock Prices and Exchange Rates. Journal of Financial Research, vol.19, 1996, pp. 193-207.
[6]	BAHMANI-OSKOOEE, M. – SOHRABIAN, A. (1992): Stock Prices and the Effective Exchange Rate of the Dollar. Applied Economics, vol. 24, 1992, pp. 459-464.
[7]	Bollerslev, Gibson and Zhou (2004): “Dynamic Estimation of Volatility Risk Premia and Investor Risk Aversion from Option-Implied and Realized Volatilities” Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, Washington, D.C.
[8]	BHATTACHARYA, (2003): Causal Relationship between Stock Market and Exchange Rate. Foreign Exchange Reserves and Value of Trade Balance: A Case Study for India. Paper presented at the Fifth Annual Conference on Money and Finance in the Indian Economy, January 2003.
[9]	CHAMBERLAIN, S. – HOWE, J. S. – POPPER, H. (1997): The Exchange Rate Exposure of U. S. and Japanese Banking Institutions. Banking and Finance, vol. 21, 1997, pp. 871-892.
[10]	DORNBUSCH, R. (1976): Expectations and Exchange Rate Dynamics. Journal of Political Eco- nomy, vol. 84, pp. 1161-1176.
[11]	DORNBUSCH,R.–FISHER,S(1980), Exchange Rates and the Current Account. American Economic Review, vol. 70, 1980, pp. 960-971.
[12]	EICHENBAUM, M.SINGLETON, K. J. (1986): Do Equilibrium Real Business Cycle Theories Explain Postwar US Business Cycles?.NBER Macroeconomics Annual. Cambridge, MIT Press, 1986, pp. 91-135.
[13]	ENGLE, GRANGER,(1987):Co-integration and Error Correction: Representation, Estimation, and Testing. Econometrica, vol. 55 p 251-276.
[14]	ENGLE, LILIEN and ROBINS (1987): Estimating Time Varying Risk Premia In The Term Structure: The ARCH-M Model. Econometrica, vol 55, Issue 2 p 391-407.
[15]	FRANCK, P. YOUNG, A. (1972): Stock Price Reaction of Multinational Firms to Exchange Re- alignments. Financial Management, vol. 1, 1972, pp. 66-73.
[16]	RIM, H. K. MOHIDIN, R. (2002): Study on the Effects of Exchange Rate on Industry Indices in Malaysia. The H.R. Frehn Center for Management Working Paper, no. 2002-01.
[17]	SOLNIK, B. (1987): Using Financial Prices to Test Exchange Rate Models: A Note. Journal of Finance, vol. 42, 1987, pp. 141-149.
[18]	STAVÁREK, D.(2004): Causalities between Stock and Foreign Exchange Markets: Evidence from Selected EU-Member Countries. In: Hanisz, R. N. Znaniecka, K. (eds.): Finance in En- larged European Union. Katowice, Wydawnictwo Akademii Ekonomicznej, 2004, pp. 233-243.