Modelling volatility using GARCH models: evidence from Egypt and Israel

This paper examines the use of GARCH-type models for modelling volatility and explaining financial market risk. We use daily data from Egypt (CMA General index) and Israel (TASE-100 index). Various time series methods are employed, including the simple GARCH model, as well as exponential GARCH, threshold GARCH, asymmetric component GARCH, the component GARCH and the power GARCH model. We find strong evidence that daily returns can be characterised by the above models. For both markets, we conclude that increased risk will not necessarily lead to a rise in the returns. The most volatile series is CMA index from Egypt, because of the uncertainty in prices (and economy) over the examined period. These findings are strongly recommended to financial managers and modellers dealing with international markets.