Modelling the Stock Price Volatility Using Asymmetry Garch and Ann-Asymmetry Garch Models
International Journal of Data Science and Analysis
Volume 4, Issue 4, August 2018, Pages: 46-52
Received: Sep. 19, 2018;
Accepted: Oct. 9, 2018;
Published: Oct. 23, 2018
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Henry Njagi, Department of Statistics and Actuarial Sciences, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Anthony Gichuhi Waititu, Department of Statistics and Actuarial Sciences, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
Anthony Wanjoya, Department of Statistics and Actuarial Sciences, Jomo Kenyatta University of Agriculture and Technology, Nairobi, Kenya
The stock price in developing countries, especially in Kenya, has become one of the market that supports the economy growth of a country. Due to the political instabilities in the Kenyan contest, stock price markets have been affected. As a consequence of the instabilities in the financial markets, this paper model the volatility associated with the stock price for a one day ahead volatility forecast which will help in risk control in the market. This is accomplished by using the asymmetry GARCH and ANN-asymmetry GARCH models. The residuals obtained from artificial neural network are used when fitting ANN- asymmetry GARCH models. It was found that returns on the selected companies in NSE are categorized by volatility clustering, leptokurtosis and asymmetry. In the modelling, we further examine the performance of the leading alternatives with the daily log returns residuals of the leading companies in Kenyan stock market (PAFR, PORT and EGAD) from the period January 2006 to November 2017 for trading days excluding weekends and holidays. The root mean squared error indicated that among the available models i.e. ANN-EGARCH model, GJR-GARCH and EGARCH model, ANN-GJR-GARCH model performed better in modelling and forecasting the stock price volatility in Kenyan contest. The paper demonstrates that combined machine learning and statistical models can effectively model stock price volatility and make reliable forecasts.
Anthony Gichuhi Waititu,
Modelling the Stock Price Volatility Using Asymmetry Garch and Ann-Asymmetry Garch Models, International Journal of Data Science and Analysis.
Vol. 4, No. 4,
2018, pp. 46-52.
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