A Rollercoaster Ride through the Equity Markets - Evidence from the Ghana Stock Exchange

Abstract

We investigated the presence of regimes in volatility of returns of the Ghana Stock Exchange index using single- and two-regime Markov-switching threshold GARCH with skewed- and student-t innovations separately for model fit. We found that the 2-regime threshold GARCH(1,1) with skewed student-t innovations provide a better fit to the data by using the deviance information criterion (DIC) to discriminate among the candidate models. There are two clear regimes with different statistics describing the volatility of returns for the low and high regimes. Incorporating regime switching thus avoids the practice of the single regime choice which pulverises the unconditional volatility through complex averaging leading to the overestimation and underestimation of risk during the low and high regimes respectively.