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Sensitivity of stock prices to economic events: econometric evidence from Sri Lankan stock market and US stock market

Authors:

D.A.I. Dayarathne ,

Sabaragamuwa University of Sri Lanka, LK
About D.A.I.
Department of Accountancy and Finance, Faculty of Mangement Stuides
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Rajith Lakshman

University of Colombo, LK
About Rajith
Department of Economics
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Abstract

This paper attempts to examine the sensitivity of stock prices to economic events in an emerging market and in a developed market. Historically several studies have been undertaken on the stock market sensitivity on important economic events in several markets. The sensitivity of stock prices to major economic events is measured by using the volatility test of Inclan and Tiao which objectively differentiates the volatile period from the weekly data series of both markets. The All Share Price Index (ASPI) and New York Stock Exchange (NYSE) Composite Index are used for the volatility test of Inclan and Tiao (1994). Then, the major economic events are matched with the volatility periods of the prices. It is found that the stock prices in both markets are highly sensitive to the major economic events. The findings of this study consistent with Bailey and Chung (1995) who find that important political events tend to be associated with sudden change in volatility. Thus this suggests that portfolio managers should be cautious in advising their clients in dynamic situations in the markets in this nature.

DOI: http://dx.doi.org/10.4038/suslj.v11i1.5886

Sabaragamuwa University Journal 2012; V. 11 No. 1 pp 21-32
How to Cite: Dayarathne, D.A.I. & Lakshman, R., (2013). Sensitivity of stock prices to economic events: econometric evidence from Sri Lankan stock market and US stock market. Sabaragamuwa University Journal. 11(1), pp.21–32. DOI: http://doi.org/10.4038/suslj.v11i1.5886
Published on 29 Jul 2013.
Peer Reviewed

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