Work detail

Regime-Switching Models and Their Application in the Financial Markets

Author: Bc. Tereza Fišerová
Year: 2011 - summer
Leaders: prof. Ing. Miloslav Vošvrda CSc.
Consultants:
Work type: Bachelors
Language: English
Pages: 62
Awards and prizes: B.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance
Link:
Abstract: The thesis is divided into two parts. The theoretical part introduces the reader to the
theory of ARCH-type models and their extensions which are represented by the Markov
regime-switching models that allow for capturing of structural breaks in the data
dynamics. In addition, the first part summarizes the current state of art. In the empirical
part, the model of Klaassen (2002) is adopted to find evidence on the existence of two
distinct volatility regimes in four of the Central European stock markets (Austria, the
Czech Republic, Germany and Poland). The model is also used as a tool for economic
crises identification. Analysis of the daily and weekly observations covering the period
from January 3, 2000 to December 31, 2010 provides three remarkable results. First, MRSGARCH(
1,1) model is adequate for modelling stock market volatility in Central Europe.
Second, the high volatility regime tends to be associated with a financial crisis. Third, the
current crisis is exceptional in terms of its duration in comparison with previous works’
conclusions.
Downloadable: Bachelor Thesis of Fišerová

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