Analyzing Volatility and Efficiency in the Egyptian Stock Exchange

Abstract

Efficiency and volatility are two aspects of stock return behavior that determine the extent to which a certain stock exchange is attractive to investors. Understanding this behavior would thus enable the formulation of more effective policies and investment decisions. This thesis examines return behavior in the Egyptian Stock Exchange by applying Generalized Autoregressive Conditional Heteroscedastic (GARCH) models to the returns series of two indexes; the Capital Market Authority Index (CMAI) and the Hermes Financial Index (HFI) for the period I" January 1994- 31'' March 2003. The objective is to examine stock return characteristics, whether the market is efficient, the relationship between risk and return, and the effect of selected macroeconomic variables on mean returns and volatility.

Keywords

Efficiency; volatility; emerging markets; Egyptian Stock Exchange; GARCH models.

Efficiency and volatility are two aspects of stock return behavior that determine the extent to which a certain stock exchange is attractive to investors. Understanding this behavior would thus enable the formulation of more effective policies and investment decisions. This thesis examines return behavior in the Egyptian Stock Exchange by applying Generalized Autoregressive Conditional Heteroscedastic (GARCH) models to the returns series of two indexes; the Capital Market Authority Index (CMAI) and the Hermes Financial Index (HFI) for the period I" January 1994- 31'' March 2003. The objective is to examine stock return characteristics, whether the market is efficient, the relationship between risk and return, and the effect of selected macroeconomic variables on mean returns and volatility.

Keywords

Efficiency; volatility; emerging markets; Egyptian Stock Exchange; GARCH models.