An Econometric Evaluation of Colombo Stock Exchange : Evidence from ARMA & PCA Approach

Economic data analysis is the process of handling economic data revise beliefs about economic problems. These problems have common structure; Row data are given on the past behaviours and decisions or actions should be taken for predicting future results. Moreover, all the actions might involve under economic decisions and set of mathematical assumptions.The main goal of this study is to investigate the directions and movements of market prices and trade volume rates in Colombo Stock Exchange (CSE) during 2002 to 2011. The year 2009 was a landmark year for CSE. Many changes happened after the end of the civil war in north part of the country. As a result of their enormous growth, they won Marketplace with the best performance award in 2009. High volatile fluctuations with instability patterns are common phenomenon in the CSE. Principal component method and ARMA models were used to identify the stock market fluctuations.The results reveals that micro and macro-economic conditions, internal and local political changers, interest rates and oil prices in the world has a direct impact on generating high volatility fluctuations in CSE. In comparison with other markets, during a very short period, CSE has been reached to top level compared with other exchanges around the world