Modeling Hong Kong Stock Market Volatility

Abstract

Volatility is a key parameter used in many financial applications, from derivatives valuation to asset management andrisk management. Volatility refers to the ups and downs in the stock prices. Volatility in the stock return is an integral part of the stock market, with the alternating bull and bear phases. Without volatility, superior returns cannot be earned.However, too much volatility is considered as a symptom of an inefficient stock market. Higher the volatility, thehigher the risk. Volatility of returns in financial markets can be a major stumbling block for attracting investment insmall developing economies. It has an impact on business investment spending and economic growth through anumber of channels. Moderate returns, high liquidity & low level of volatility are considered as symptoms of a developed markets. Low volatility is preferred as it reduces an unnecessary risk borne by investors, thus enabling market traders to liquidate their assets without large price movements