On nonlinearities in KSE 100 index stock return

Authors

Khurshid M. Kiani, Bang College of Business, Almaty, Republic of Kazakhstan

Abstract

This research investigates possible existence of asymmetries in business cycle fluctuations in Karachi Stock Exchange (KSE) 100 index over money market rates. I model the relationship between excess stock return in KSE 100 index using a number of nonlinear time series models for constructing linearity tests for testing linearity in KSE 100 excess returns. These tests include Keenan test, Ramsay RESET test, and its improved versions i.e. RESET1 and RESET2 tests. The results based on Keenan test show statistically significant evidence of nonlinearities in KSE 100 excess returns. Likewise the results from Ramsay RESET test confirm this behavior. However, the results from RESET1 test fail to reveal statistically significant evidence of nonlinearities in KSE 100 excess returns. Similarly, RESET2 test failed to reject the linearity hypothesis for KSE 100 index excess returns.

Keywords

Asymmetries, Nonlinearities, Principal components, Excess stock returns

DOI

https://doi.org/10.54784/1990-6587.1134

Journal of Economic Literature Subject Codes

B22, C32, C45, E32

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Recommended Citation

Kiani, K. M. (2008). On nonlinearities in KSE 100 index stock return. Business Review, 3(1), 79-90. Retrieved from https://doi.org/10.54784/1990-6587.1134