Abstract

This paper investigates the conditional volatility in stock returns in Indonesia over the period covered by the Asian crisis. Rolling regression parameter estimates from three asymmetric volatility models suggested that all parameters, including those capturing asymmetric response, were time-varying. The precise pattern of adjustment was sensitive to model selection. Nevertheless, increases in asymmetric response patterns appear to coincide with the very large exchange rate devaluations in the rupiah over this period and were followed by more general symmetric short-term volatility in the post crisis period. Estimates from a smooth transition volatility model indicated both sign and size asymmetries during the crisis period.

Keywords: Stock market; Indonesia; Asymmetric volatility; Rolling regressions

JEL classification codes: G12; G15