Modeling and Forecasting Egyptian Stock Market Volatility Before and After Price Limits

This paper investigates the impact of price limits on volatility dynamics in the Egyptian Stock Exchange. A variety of mean and variance specifications in GARCH type models (GARCH, EGARCH, GJR, and APARCH), and four different error distributions (Normal, Student-t, GED, and Skewed-t) are utilized. Results from examining a split sample suggest significant changes in the time varying volatility process. In-sample results, prior to the imposition of price limits exhibit leptokurtosis, yet showing no sign of the widely cited leverage effect. In-sample results, after the imposition of price limits display both leptokurtosis and the leverage effect. Out-of-sample forecasts depict the leverage effects, when present, but provide conflicting results regarding the distribution.