Modelling of volatility of stock prices using GARCH models & its importance in portfolio construction

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dc.contributor.advisorGuo, Renkuanen_ZA
dc.contributor.authorMtemeri, Tinotendaen_ZA
dc.date.accessioned2014-10-30T13:49:13Z
dc.date.available2014-10-30T13:49:13Z
dc.date.issued2009en_ZA
dc.descriptionIncludes bibliographical references (leaves 93-96).en_ZA
dc.description.abstractThis thesis is aimed at investigating the possibility to model the risk of stocks in financial markets and evaluating the adequacy and effectiveness of univariate GARCH models such as the symmetric GARCH and a few other variations such as the EGARCH, TARCH and PARCH in modelling volatility in monthly returns of stocks traded on the Johannesburg Stock Exchange. This is further used to investigate the importance of GARCH modelling in portfolio construction using Improved Sharpe Single Index Models. The data used for model estimation has been randomly selected from different sectors of the South African economy. GARCH models are estimated and validated for the data series of the randomly selected 15 JSE stocks. Conclusions are drawn regarding the different GARCH models, best lag structure and best error distributions for modelling. The GARCH (1,1) model demonstrates a relatively good forecasting performance as far as the short term forecasting horizon is concerned. However, the use of alternatives to the more common GARCH (1,1) and use of non-normal distributions is not clearly supported. Also, the use of higher order GARCH models such as the GARCH (1,2), GARCH (2,1) and GARCH (2,2) is not clearly supported and the GARCH (1, 1) remains superior overall to these models. The results obtained from this thesis are of paramount importance in portfolio construction, option pricing and formulating hedging strategies. An illustration of the importance of the G ARCH (1,1) model in portfolio construction is given and conclusions are drawn regarding its usefulness in improving our volatility estimations for purposes of portfolio construction.en_ZA
dc.identifier.apacitationMtemeri, T. (2009). <i>Modelling of volatility of stock prices using GARCH models & its importance in portfolio construction</i>. (Thesis). University of Cape Town ,Faculty of Science ,Department of Mathematics and Applied Mathematics. Retrieved from http://hdl.handle.net/11427/8958en_ZA
dc.identifier.chicagocitationMtemeri, Tinotenda. <i>"Modelling of volatility of stock prices using GARCH models & its importance in portfolio construction."</i> Thesis., University of Cape Town ,Faculty of Science ,Department of Mathematics and Applied Mathematics, 2009. http://hdl.handle.net/11427/8958en_ZA
dc.identifier.citationMtemeri, T. 2009. Modelling of volatility of stock prices using GARCH models & its importance in portfolio construction. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Mtemeri, Tinotenda AB - This thesis is aimed at investigating the possibility to model the risk of stocks in financial markets and evaluating the adequacy and effectiveness of univariate GARCH models such as the symmetric GARCH and a few other variations such as the EGARCH, TARCH and PARCH in modelling volatility in monthly returns of stocks traded on the Johannesburg Stock Exchange. This is further used to investigate the importance of GARCH modelling in portfolio construction using Improved Sharpe Single Index Models. The data used for model estimation has been randomly selected from different sectors of the South African economy. GARCH models are estimated and validated for the data series of the randomly selected 15 JSE stocks. Conclusions are drawn regarding the different GARCH models, best lag structure and best error distributions for modelling. The GARCH (1,1) model demonstrates a relatively good forecasting performance as far as the short term forecasting horizon is concerned. However, the use of alternatives to the more common GARCH (1,1) and use of non-normal distributions is not clearly supported. Also, the use of higher order GARCH models such as the GARCH (1,2), GARCH (2,1) and GARCH (2,2) is not clearly supported and the GARCH (1, 1) remains superior overall to these models. The results obtained from this thesis are of paramount importance in portfolio construction, option pricing and formulating hedging strategies. An illustration of the importance of the G ARCH (1,1) model in portfolio construction is given and conclusions are drawn regarding its usefulness in improving our volatility estimations for purposes of portfolio construction. DA - 2009 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2009 T1 - Modelling of volatility of stock prices using GARCH models & its importance in portfolio construction TI - Modelling of volatility of stock prices using GARCH models & its importance in portfolio construction UR - http://hdl.handle.net/11427/8958 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/8958
dc.identifier.vancouvercitationMtemeri T. Modelling of volatility of stock prices using GARCH models & its importance in portfolio construction. [Thesis]. University of Cape Town ,Faculty of Science ,Department of Mathematics and Applied Mathematics, 2009 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/8958en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentDepartment of Mathematics and Applied Mathematicsen_ZA
dc.publisher.facultyFaculty of Scienceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherFinancial Mathematicsen_ZA
dc.titleModelling of volatility of stock prices using GARCH models & its importance in portfolio constructionen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMScen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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