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Macroeconomic Sensitivity, Risk-Return Trade-Off and Volatility Dynamics Evidence From Developed and Developing Markets
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Author(s): Faisal Khan (City University College of Ajman, Ajman, UAE), Hashim Khan (COMSATS University Islamabad, Islamabad, Pakistan), Saif Ur-Rehman Khan (Canadian University of Dubai, Dubai, UAE), Muhammad Jumaa (City University College of Ajman, Ajman, UAE)and Sharif Ullah Jan (COMSATS University Islamabad, Wah Campus, Islamabad, Pakistan)
Copyright: 2023
Pages: 19
Source title:
Research Anthology on Macroeconomics and the Achievement of Global Stability
Source Author(s)/Editor(s): Information Resources Management Association (USA)
DOI: 10.4018/978-1-6684-7460-0.ch032
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Abstract
This study aims to examine the impact of macroeconomic factors on the stock return volatility along with the pricing of risk, and asymmetry and leverage effect on a comparative basis for the USA and UAE markets. Further, these three dimensions are also investigated with regard to various firm's features (such as firm's size and age). The daily data for the period 4th January 2010 to 29th December 2017 of firm stock returns from the New York Stock Exchange (NYSE), the Abu Dhabi Securities Exchange (ADSE), and the Dubai Financial Market (DFM) is considered and three time-series models were applied. The results from GARCH (1. 1) indicated that all the economic factors have significant impact on the stock return volatility in both the markets. Similarly, the study also found evidence of asymmetry & leverage effect using EGARCH in the NYSE (for all firms) and the UAE (partially). Finally, for a majority of the firms, a positive risk-return relationship is found in the UAE and a negative risk-return relationship is found in the NYSE using GARCH-in the mean. Interestingly, these results in context of both markets were different with respect to various firm features such as firm size and age. In light of these results, it is concluded that both the markets have different dynamics with regard to all three dimensions. Hence, the investors have a clear opportunity to diversify their risk and investments across developed and emerging markets.
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