Stock Market Volatility and Important Events: Evidence from Colombo Stock Exchange and the New York Stock Exchange

Abstract

This paper attempts to examine the link between the stock market volatility and the important economic events in the context of emerging markets and developed markets in scenario of global market crises. Historically several studies have been undertaken on the stock market volatility and important economic events in several markets. This study applies the volatility test of Inclan and Tiao (1994) which objectively differentiates the volatile period from the weekly data series of both markets. The market portfolios, ASPI and SYSE are used for the volatility of Inclan and Tiao (1994). It is found that there is a close link between the economic events and the volatility in the stock markets irrespective of emerging or developed markets. The findings of this study consistent with Bailey and Chung (1995) who find that important political events tend to be associated with sudden change in volatility. Thus this suggests that portfolio managers should be cautious in advising their clients in a dynamic situation in the markets in this nature.

Keywords: Market Volatility, Macroeconomic Events, Volatility Breaks

JEL Classification: A13, D10