Asymmetric volatility structure of equity returns: Evidence from an emerging market

This study aims to evaluate the volatility structure of equity returns in an emerging market. We test the persistence and asymmetries in the volatility structure of equity returns in the Pakistan stock exchange (PSX) between 2006 and 2020. The volatility dynamics are assessed using multiple symmetric and asym- metric variants of GARCH family models. We also introduce News Impact Curves to analyze the presence of asymmetries in the volatility of the returns. Our results demonstrate that the volatility is persistent only in daily returns but not in weekly and monthly returns. Similarly, asymmetries were observed for daily returns implying that news arriving in the market continuously does impact investors' sentiment and behavior. However, this phenomenon subdues when the period is extended, reflecting that PSX is effi- cient in semi-strong form. These findings have important implications for asset management, instrument pricing, cost of capital estimations, and portfolio optimization.(c) 2021 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.