An Empirical Study of Volatility in Chittagong Stock Exchange

Abstract

The Main objective of this study is to exhume the nature of volatility in Chittagong Stock Exchange (CSE). It also aims to measure the impact of selective macro-economic factors on volatility. For this study, data have been collected from the websites of CSE and The World Bank from 2009 to 2018. To test the volatility and the impact of macro-economic variables, Generally Autoregressive Conditional Heteroscedasticity (GARCH) and Vector Autoregression (VAR) have been applied. The stationarity of the data has been verified with Augmented Dickey Fuller (ADF) and Phillips-Perron (PP) unit root tests. This study finds that both GARCH (1,1) and VAR models can successfully forecast the volatility movement in CSE. Although inflation, money supply, and flow of remittance have significant and positive impact on the volatility, the interest rate has negative and significant impact on volatility in CSE. It is also observed that residuals are conditionally heteroskedastic. Shocks on macro-economic variables have direct influence on volatility. Appropriate implementation of recommended policies can turn this highly potential market in to a strong platform for economic growth of this nation.