ARCH versus information-based variances: evidence from the Tokyo Stock Market |
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| Affiliation: | 1. School of Economics and Business, SUNY Oneonta, Netzer Administration Building 223, 108 Ravine Parkway, Oneonta, NY 13820, United States;2. Department of Finance, Faculty of Business & Economics, University of Melbourne, Level 12, 198 Berkeley Street Victoria, 3010, Australia;1. IÉSEG School of Management (LEM-CNRS), Lille Catholic University, 3, rue de la Digue, 59000 Lille, France;2. Faculty of Business Administration, Lakehead University, 955 Oliver Road, Thunder Bay, Ontario P7B 5E1, Canada |
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| Abstract: | By using both the individual stock prices quoted on the Tokyo Stock Exchange and their price index (TOPIX), this paper examines whether the conditional variance of stock returns is characterized by the auto-regressive-conditional-heteroskedasticity (ARCH) effect or the information-based effect. The paper finds that the inclusion of the trading volume in both generalized ARCH (GARCH) and exponential GARCH (EGARCH) specifications eliminates the ARCH effect for individual stocks and the TOPIX. The paper explains the reasons for these results. The findings suggest strong support for the information-based variance model which gives a parallel explanation to the ARCH-type models. |
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