Emna Abdennadher^1,, Slaheddine Hallara²

Given the evidence of occasional discrete shifts in the conditional variance process, it is essential to test the volatility of financial markets when a reasonable suspicion exists for structural change. This paper examines the volatility changes of emerging stock markets over a period extending from April 2005 to March 2015. We apply the Bai and Perron technique to test multiple structural breaks in the volatility. We find evidence of structural breaks in the volatility series for the majority of markets, where most of coefficients of the structural dummy variables in the mean and volatility equations are significant. This suggests that the structural breaks have significant effects on the volatility behavior of the stock markets. We observe sharp drops in a measure of volatility persistence after incorporating the structural change. The results also show a performance improvement in our modeling by including structural break dummy variables into the variance equation. Overall, the findings are important in understanding the role of regime shifts on stock market stability and are of great significance to investors and market regulators.

volatility, structural breaks, emerging stock markets, GARCH models