Abstract
Purpose - The purpose of this paper is to empirically examine the market efficiency, asymmetric effect and time varying risk-return relationship for daily stock return of Amman Stock Exchange (ASE).
Design/methodology/approach - The Box-Jenkins selection model is used to determine the stochastic process of equity returns; the exponential generalized autogressive conditional heteroscedesticity (EGARCH) and threshhold autoregressive conditional heteroscedasticity in mean are utilized to measure the persistent of volatility, risk-return relationship and volatility magnitude to bad and good news.
Findings - The univariate statistics show negative skewness, excess kurtosis and deviation from normality for the ASE index. The results show that stock return follows an ARMA (1, 1) stochastic process with significant serial correlation, implying stock market inefficiency. The results also show significant positive relationship between equity return and risk in the ASE, which is consistent with the portfolio theory. The EGARCH model suggests the existence of the asymmetric effect.
Originality/value - The paper offers insights into market efficiency, time-varying volatility and asymmetric effect in the ASE.