A comparative study of conditional volatility patters across developed, emerging and frontier markets using GARCH models
Author
Bredall, Pernille Petersen
Term
4. semester
Publication year
2023
Abstract
This thesis examines how conditional volatility patterns differ across developed, emerging, and frontier equity markets against the backdrop of growing global market integration. It compares persistence, asymmetry (the leverage effect), and mean reversion, and measures the speed of mean reversion. Using market index data from 31-12-2012 to 31-12-2022, the study estimates GARCH and TGARCH models to detect predictable features in volatility and applies a GARCH-based half-life measure to quantify mean-reversion speed. The findings indicate evidence of volatility persistence, asymmetry, and mean reversion in all three market groups, suggesting that volatility contains predictable components. Over the sample period, developed markets displayed the highest overall volatility and the strongest volatility asymmetry, while emerging markets exhibited greater persistence. Frontier markets showed the fastest mean reversion, and emerging markets the slowest. These results add to the literature on market volatility and offer practical insights for investors and risk management in internationally diversified portfolios.
Denne afhandling undersøger, hvordan betingede volatilitetmønstre varierer på tværs af udviklede, fremvoksende og grænsemarkeder i lyset af øget global integration af aktiemarkeder. Formålet er at sammenligne persistens, asymmetri (leverage-effekt) og middelreversion samt at måle hastigheden af middelreversion. Studiet anvender markedsindeksdata fra 31-12-2012 til 31-12-2022 og estimerer GARCH- og TGARCH-modeller for at afdække forudsigelige mønstre i volatiliteten, suppleret af en halveringstidsmetode (afledt af GARCH) til at kvantificere middelreversionshastighed. Resultaterne viser evidens for volatilitetspersistens, asymmetri og middelreversion i alle tre markedsgrupper, hvilket indikerer, at der findes forudsigelige komponenter i finansielle aktivers volatilitet. I den undersøgte periode havde udviklede markeder den højeste samlede volatilitet og den stærkeste volatilitetasymmetri, mens fremvoksende markeder var mest persistente. Grænsemarkeder udviste den hurtigste middelreversion, og fremvoksende markeder den langsomste. Fundene bidrager til litteraturen om markedsvolatilitet og kan understøtte investorer og risikostyring i tværnationale porteføljer.
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