Analysis of stock index of an emerging economy. Estimating a stock index value through ARIMA equation.

1. BUDAPEST STOCK EXCHANGE
Analysis of stock index of an emerging economy
Santosh J K

2. Introduction
• Stock Index: BUX, Budapest Stock Exchange, Hungary
• Applications utilised: Microsoft Excel 2011, Eviews 7.0
• Significant models: ARIMA(3,1,3), GARCH(2,3) & GARCH(3,2)
• In-sample data: April 01’ 1997 to March 31’ 2009
• Out-sample data: April 01’ 2009 to November 12’ 2013

3. Time series plot of BUX
0"
5,000"
10,000"
15,000"
20,000"
25,000"
30,000"
35,000"
01/04/1997"
01/04/1998"
01/04/1999"
01/04/2000"
01/04/2001"
01/04/2002"
01/04/2003"
01/04/2004"
01/04/2005"
01/04/2006"
01/04/2007"
01/04/2008"
01/04/2009"
01/04/2010"
01/04/2011"
01/04/2012"
01/04/2013"
BUX$

4. Data description
0
100
200
300
400
500
600
700
4000 8000 12000 16000 20000 24000 28000
Series: BUX
Sample 4/01/1997 11/12/2013
Observations 4034
Mean 14658.74
Median 14695.23
Maximum 30118.12
Minimum 3775.020
Std. Dev. 6833.213
Skewness 0.184081
Kurtosis 1.560072
Jarque-Bera 371.2852
Probability 0.000000

5. Structural Break
Structural breakpoint
was found to be on
November 29’ 2004.
Chow Breakpoint test
confirms the findings.

6. Stationarity
Data was found to be
stationary for the log
returns of the index,
as per the ADF - first
difference test.

7. Time series plot of the log returns of BUX
-.20
-.15
-.10
-.05
.00
.05
.10
.15
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
LN(BUX)

8. ARIMA model
A series of
iterations
revealed,
ARIMA(3,1,3)
to be the best fit
model.

9. GARCH model
Two models turned
out to be highly
significant -
GARCH(2,3) &
GARCH(3,2).
Of the two,
GARCH(2,3)
is relatively better.

10. GARCH model
The other highly
significant GARCH
model.

11. Log returns of BUX and S&P 500
-.20
-.15
-.10
-.05
.00
.05
.10
.15
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
LN(BUX) LN(S&P)

12. Structural model - Lag order selection
Lag 6 is significant

13. Structural model - Causality test
BUX is dependent on
S&P 500,
while S&P 500 is not
influenced by BUX

14. Forecast
-.20
-.15
-.10
-.05
.00
.05
.10
.15
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
LN(BUX) LN(BUX) (Baseline)

15. THANK YOU
Santosh J K