Bangladesh Bank Training Academy Journal

Abstract

Volatility in the stock prices behavior is a normal phenomenon. This is a key element for pricing financial instruments. Financial market volatility also has a wider impact on financial regulation, monetary policy and the macro economy. Study use, daily closing prices data of “DSEX” Broad Index during January 28, 2013 to December 31, 2015. The ARCH and GARCH models are used to estimate the volatility and Phillip Parron test for stationary. Estimated results revealed that the volatility in the Dhaka stock market follow GARCH (1, 1) model i.e. volatility in the Dhaka stock market depends on the past shock in the residual square and the past shock in the variance. Estimated results also revealed its stylized facts volatility clustering, fat tails, persistence of volatility and mean reverting in the series under analysis. The results of the study have useful implications for regulators and policy makers in the Dhaka stock market.