VOLATILITY SHOCK PERSISTENCE IN INVESTMENT DECISION MAKING: A COMPARISON BETWEEN THE CONSUMER GOODS AND PROPERTY-REAL ESTATE SECTORS OF THE INDONESIAN CAPITAL MARKET

https://doi.org/10.22146/jieb.23225

Ari Christianti(1*)

(1) Faculty of Business, Duta Wacana Christian University
(*) Corresponding Author

Abstract


Research about volatility shock persistence is very important, since it could reflect the risks that can be used to estimate the fluctuations of stock returns in the future. This paper investigates a comparison of the volatility shock persistence sectoral indexes between the consumer goods (CONS) and property-real estate (PROP) sectors, using a single index model analyzed using GARCH (Generalized Autoregressive Conditional Heteroscedasticity) and I-GARCH (Integrated-Generalized Autoregressive Conditional Heteroscedasticity). By using index return data from January 2010-December 2015, the research shows that CONS and PROP tend to produce the same results. The CONS and PROP indexes’ responses to volatility shocks tended to be quite fast. Hence, the single index model of the CONS and the PROP indexes can quickly return to its normal stability. It means that, in the presence of certain information which could affect the volatility of the return from these sectors, the market will respond and adapt immediately. This might be attributed to the fact that CONS is a sector that involves fast moving products. Furthermore, the PROP sector has an indirect effect by increasing the real sectoral economic activity and economic growth in Indonesia, which has a large population. Thus, it is recommended that investors who are risk averse and risk neutral should invest in these sectors, because the volatility of both indexes can be monitored based on the existing information.


Keywords


volatility shock persistence, investment decisions, consumption sector, and property and real-estate sector

Full Text:

PDF


References

Anto, E.,2015., “5 Alasan Mengapa Investasi Properti dan Real Estate Semakin Meningkat[5 Reasons Why Investment in Property and Real Estate is Increased]”. Available at: http://www.rumah.com/berita-properti/ 2015/9/106466/5-alasan-mengapa-investasi-properti-semakin-meningkat, accesssed on 06 August 2016.

Bollerslev, T., J. Marrone, L. Xu, and H. Zhou, 2014. "Stock Return Predictability and Variance Risk Premia: Statistical Inference and International Evidence". Journal of Financial and Quantitative Analysis, 49, 633–661.

Carr, P., andL. Wu, 2009. "Risk Premiums". Review of Financial Studies, 22(3), 1311–1341.

Cooper, I. 1996. "Arithmetic Versus Geome­tric Mean Estimators: Setting Discount Rates for Capital Budgeting". European Financial Management, 2, 157–167.

Elton, E. J., Gruber, M. J., Brown, S. J., & Goetzmann, W. N. 2014. Modern Portfolio Theory and Investment Analysis. Wiley.

Engle, R. F. 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation". Econometrica, 50, 987–1008.

Hui-Boon Tan, Chee-W.H., Sook-M.T. 2006. "Financial Risk and Shocks Persistence in Malaysian Technology Stock". Inter­national Journal of Business and Society, 7, 10–18.

Islam, M. A., andB. I. Mahkota, 2013. "Estimating Volatility of Stock Index Returns by Using Symmetric Garch Models". Middle-East Journal of Scientific Research, 18(7), 991–999.

Jain, A., andS. Strobl, 2015. "The Excess Returns Puzzle: Interactions with Information Asymmetry Variables". The International Journal of Finance, 27, 334–353.

Jain, A., andS. Strobl, 2017. "The Effect of Volatility Persistence on Excess Returns". Review of Financial Economics, 32, 58–63.

Patton, A. J., andK. Sheppard, 2015. "Good Volatility, Bad Volatility: Sign Jumps and the Persistence of Volatility". The Review of Economics and Statistics, 97, 683–697.

Poterba, J. M., andL. H. Summers, 1986. "The Persistence of Volatility and Stock Market Fluctuations". The American Economic Review, 76, 1142–1151.

Rajput, N., P. Chopra, and A. Rajput, 2012. "FII and Its Impact on Stock Market: A Study on Lead-Lag and Volatility Spillover". Asian Journal of Finance & Accounting, 4, 18–38.

Engle, R. F., and T. Bollerslev, 1986. "Modelling The Persistence of Conditional Variance". Econometric Reviews, 5, 1–50.

Wang, J. 1993. "A Model of Intertemporal Asset Prices Under Asymmetric Information". The Review of Economic Studies, 60, 249–282.



DOI: https://doi.org/10.22146/jieb.23225

Article Metrics

Abstract views : 1074 | views : 1096

Refbacks

  • There are currently no refbacks.




Copyright (c) 2018 Journal of Indonesian Economy and Business

Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Journal of Indonesian Economy and Business

Journal

Editorial Team
Focus and Scope
Peer Review Process
Publication Ethics
Screening for Plagiarism

Authors

Author Guidelines
Submission Guidelines
Online Submissions
Copyright Notice
Privacy Statement
Author Fees

Download

Author Pack
Submission Form & Manuscript Template

 

Reviewer

Reviewer Guidelines
Reviewer Acknowledgement

 

Reader

General Search
Achieves
Author index
Title index

 

 

The Journal of Indonesian Economy and Business (print ISSN 2085-8272; online ISSN 2338-5847) is published by the Faculty of Economics and Business Universitas Gadjah Mada, Indonesia. The content of this website is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License

© 2019 Journal of Indonesian Economy and Business 
 Visitor Statistics