Leeds Beckett University
StockReturnVolatilityInSoutheastAsianMarkets-INPHONG.pdf (4.03 MB)

Stock Return Volatility in Southeast Asian Markets

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posted on 2022-11-22, 14:06 authored by Natthinee Inphong

This thesis explores determinants of stock return volatility in Southeast Asian markets. Firstly, we examine the effects of fundamental factors (macroeconomic and corporate variables) and behavioural factors (index composition and political risk) on stock market volatility. The factors are studied based on two theories in finance: neoclassical finance and behavioural finance. The results show that behavioural factors affect stock market volatility more significantly than fundamental factors in the countries with underdeveloped financial systems and unstable economies. This implies that the concept of behavioural finance is more reliable. However, the implication of the results presented in this thesis contributes to numerous finance researches regarding the theory of neoclassical finance in the countries with developed financial systems and stable economies. 

Next, we investigate evidence of primary factors influencing stock return volatility at industry level. Our results indicate that behavioural factors influence industry return volatility more significantly compared to those on aggregate market level. In other words, noise trading tends to be found in industry level, while informed traders become more dominant in the market, and thus the impact of noise trading on aggregate market volatility is reduced. 

Finally, we further evaluate the significance of stock return volatility by investigating the dynamics of volatility for the implications of real economic activity and crisis. A number of tests are conducted to examine whether the characteristics of return volatility involve a crisis and whether information in time-varying return volatilities explains macroeconomic fluctuations. As expected, we have found some characteristics of return volatility related to a crisis. There are the same results in both aggregate market and industry levels. The positive and relatively large value of β coefficient, which indicates high persistence in volatility, has been found in the time of pre-crisis. In addition, the results suggest that return volatility at industry level are most important closer to real economic activity, while return volatility at aggregate market is further. Most notably, industries that highly related to financial system (finance & securities and banking industry groups) appear to warrant overweighting for macroeconomic environment. 

Our results should be of value to macro-prudential, fiscal and monetary policy makers, as they provide guidance on how policy makers should think about the relationship between stock return volatility and the financial system to indicate economic conditions. These also present an important policy implication in light of stock market regulations, which should be established to prevent investors from clouding decision-making processes.


Qualification name

  • PhD


Nasir, Muhammad-Ali

Awarding Institution

Leeds Beckett University

Completion Date


Qualification level

  • Doctoral


  • eng


Leeds Beckett University

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