Analysing the Volatility of Banco do Brasil Shares between 2012 and 2023. An Application of ARCH and GARCH Models
Keywords:
Volatility, Time series, ARCH and GARCH models, Banco do Brasil, Stock returnsAbstract
The need to understand volatility has become more urgent with the evolution of the modern economy. The degree of uncertainty and the endogenous and exogenous risks to the market, especially the financial market, demanded that analyses also look at the conditional heteroscedasticity of indicators. In this article we are interested in analysing financial time series, i.e. series of Banco do Brasil share returns between January 2012 and February 2023 using ARCH and GARCH models. The estimated ARCH (4) and GARCH (1,1) models better captured volatility with t-Student residuals, which is different from normal and can be used to predict volatility, but since volatility is not directly observed, it can be worked with heteroscedastic models and GARCH (1,1) proved to be the best, both by AIC and BIC, as well as by the parsimonious criterion, flexibility and a better fit to the data, thus providing a better prediction of the volatility of Banco do Brasil shares.
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