engleski

Influence of investment funds development and beginning of EU negotiation on Croatian capital market volatility

This paper deals with research of impact of intensive increase of the investment funds proportion on Croatian capital market in 2004 as well as the beginning of EU negotiation in 2005 on the capital market volatility. The aim is to model volatility of returns of Crobex index on the Zagreb Stock Exchange, measuring volatility reaction on market movements and volatility persistence. Financial time series contain volatility which is not constant over time. The most common measure of volatility as dispersion in a probability distribution is the standard deviation of a random variable. Today, even it is difficult to predict price variations of financial asset, different models are used to forecast daily volatility of financial time series. To any asset holder it is important to forecast the rate of return and its variance over the holding period and to estimate the risk associated with holding a particular asset. Models which are used to account daily volatility forecasts assume heteroscedastic variance. As the most appropriate models for those analysis ARCH (Autoregressive Conditional Heteroscedasticity) and generalization of the ARCH models (Generalized Autoregressive Conditional Heteroscedasticity - GARCH) are used. Besides modeling and measuring volatility of returns of Crobex index on Zagreb Stock Exchange, dummy variable is used to determine how the beginning of EU accession negotiations affect Croatian market volatility.

capital market movements; volatility modeling; GARCH process; unconditional variance; forecasting of CROBEX return series

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