Application of ARCH - GARCH Models for Analysis of the Fluctuation of VN_Index

Abstract

In the context of Vietnamese stock market, the awareness of the fluctuation of VN_Index index is the awareness of the information of stock market, and it has an important role in stock evaluation and risk management. The risk here is expressed by the fluctuation in the rate of return of the stock index. Therefore, this study focuses on analyzing the fluctuation of rate of return of VN_Index. This analysis is based on the set of daily closing stock price data for the 2007-2017 period with 2670 observations. The analysis has used the ARCH model and GARCH models. The results of the ARCH model (7) show that past shocks have a large and persistent effect on the fluctuation of the rate of return of VN_Index. This study also demonstrates that the GARCH (1,1) model is preeminent to make predictions for the conditional heteroscedastic of the rate of return. At the same time, TGARCH (1.1) provides evidence that negative shocks have a greater effect on the rate of return than positive shocks. The research achievements help securities investors gain important information for risk management, predict the fluctuations of the stock market in the short term, and identify the volatility of the market to make the right investment decision.