C58 - Financial EconometricsReturn

This study investigates whether the canonical asymmetric volatility documented in developed markets can be generalized to an emerging market setting, using the Casablanca Stock Exchange (MASI index, 2011–2023) as a case study. Applying symmetric and asymmetric GARCH models with a three period subsample robustness check (pre-COVID, COVID, post-COVID),  we uncover a pattern of attenuated asymmetry. During normal conditions and the COVID-19 crisis, the market exhibits significant volatility persistence coupled with symmetric responses to shocks, challenging the near-universal evidence of leverage effects. However, the post-COVID geopolitical crisis temporarily activates powerful asymmetry, revealing that volatility dynamics are state-dependent and crisis-type specific. The symmetric GARCH model outperforms asymmetric specifications in forecasting accuracy across most periods, demonstrating that additional complexity is unwarranted during normal conditions. These findings show that microstructure characteristics fundamentally shape volatility dynamics, and that the leverage effect cannot be universally assumed across all emerging markets.

The paper investigates the relationship between short selling activities of stocks on the volatility of the US market and its sectors. We apply the multivariate DCC GARCH Model on the NYSE US 100 Index between November 2017 and October 2018. We find evidence that investments in some specific firms on the market reduce the market volatility and higher short selling activities reduce risk in the market. The study also finds that firms in the financial sector dominate the market and short selling activities in this sector has a greater impact on the market volatility. We also find portfolio managers to be better off investing in the market than creating portfolio within sectors.