Permanent and Temporary Components of Stock Returns: an Application of State-Space Models with Markov Switching Heteroskedasticity

Soleyman, Sirous; Falahati, Ali; Rostami, Alireza

doi:10.18869/acadpub.jemr.7.25.69

Volume 7, Issue 25 (10-2016) jemr 2016, 7(25): 69-90 | Back to browse issues page

‎ 10.18869/acadpub.jemr.7.25.69

‎ 20.1001.1.22286454.1395.7.25.1.5

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Soleyman S, Falahati A, Rostami A. Permanent and Temporary Components of Stock Returns: an Application of State-Space Models with Markov Switching Heteroskedasticity. jemr 2016; 7 (25) :69-90
URL: http://jemr.khu.ac.ir/article-1-885-en.html

Permanent and Temporary Components of Stock Returns: an Application of State-Space Models with Markov Switching Heteroskedasticity

Sirous Soleyman ^*

¹, Ali Falahati

, Alireza Rostami

1- , Alifalahati@yahoo.com

Abstract: (6802 Views)

In this study by using Markov Regime Switching Heteroscedasticity Models (MRSH) in the form of state-space model the behavior of stock returns is examined. This approach endogenously permits the volatility to switch as the date and regime change and allows us to decompose the permanent and transitory component of stock returns. The period of the study is the fourth month of 2000 to the seventh month of 2013. The durations of the high-variance regimes for permanent components short-lived and revert to normal levels quickly and low variance regime for this components is more lasting, but durations of high-variance regime for transitory component is reverse. Also, in during periods of study low variance regime is dominant by a permanent component of stock returns but for the transitory component the high variance state is true captured.

Keywords: Volatility of Stock Returns, Permanent and Transitory Components, Markow switching, Satae-spase Model, Transition Probability

Full-Text [PDF 3180 kb] (2792 Downloads)

Type of Study: بنیادی | Subject: پولی و مالی
Received: 2013/12/1 | Accepted: 2016/11/16 | Published: 2016/12/19

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