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Stock Market Volatility and Return Analysis: A Systematic Literature Review

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DOI: 10.3390/e22050522

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Review
Stock Market Volatility and Return Analysis:
A Systematic Literature Review
Roni Bhowmik 1,2, * and Shouyang Wang 3
1 School of Economics and Management, Jiujiang University, Jiujiang 322227, China
2 Department of Business Administration, Daffodil International University, Dhaka 1207, Bangladesh
3 Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100080, China;
[email protected]
* Correspondence: [email protected]




Received: 27 March 2020; Accepted: 29 April 2020; Published: 4 May 2020


Abstract: In the field of business research method, a literature review is more relevant than ever.
Even though there has been lack of integrity and inflexibility in traditional literature reviews with
questions being raised about the quality and trustworthiness of these types of reviews. This research
provides a literature review using a systematic database to examine and cross-reference snowballing.
In this paper, previous studies featuring a generalized autoregressive conditional heteroskedastic
(GARCH) family-based model stock market return and volatility have also been reviewed. The stock
market plays a pivotal role in today’s world economic activities, named a “barometer” and “alarm”
for economic and financial activities in a country or region. In order to prevent uncertainty and
risk in the stock market, it is particularly important to measure effectively the volatility of stock
index returns. However, the main purpose of this review is to examine effective GARCH models
recommended for performing market returns and volatilities analysis. The secondary purpose of
this review study is to conduct a content analysis of return and volatility literature reviews over a
period of 12 years (2008–2019) and in 50 different papers. The study found that there has been a
significant change in research work within the past 10 years and most of researchers have worked for
developing stock markets.

Keywords: stock returns; volatility; GARCH family model; complexity in market volatility forecasting

1. Introduction
In the context of economic globalization, especially after the impact of the contemporary
international financial crisis, the stock market has experienced unprecedented fluctuations.
This volatility increases the uncertainty and risk of the stock market and is detrimental to the
normal operation of the stock market. To reduce this uncertainty, it is particularly important to measure
accurately the volatility of stock index returns. At the same time, due to the important position of the
stock market in the global economy, the beneficial development of the stock market has become the
focus. Therefore, the knowledge of theoretical and literature significance of volatility are needed to
measure the volatility of stock index returns.
Volatility is a hot issue in economic and financial research. Volatility is one of the most important
characteristics of financial markets. It is directly related to market uncertainty and affects the investment
behavior of enterprises and individuals. A study of the volatility of financial asset returns is also one
of the core issues in modern financial research and this volatility is often described and measured by
the variance of the rate of return. However, forecasting perfect market volatility is difficult work and
despite the availability of various models and techniques, not all of them work equally for all stock

Entropy 2020, 22, 522; doi:10.3390/e22050522 www.mdpi.com/journal/entropy

Entropy 2020, 22, 522 2 of 18

markets. It is for this reason that researchers and financial analysts face such a complexity in market
returns and volatilities forecasting.
The traditional econometric model often assumes that the variance is constant, that is, the variance
is kept constant at different times. An accurate measurement of the rate of return’s fluctuation is
directly related to the correctness of portfolio selection, the effectiveness of risk management, and the
rationality of asset pricing. However, with the development of financial theory and the deepening of
empirical research, it was found that this assumption is not reasonable. Additionally, the volatility of
asset prices is one of the most puzzling phenomena in financial economics. It is a great challenge for
investors to get a pure understanding of volatility.
A literature reviews act as a significant part of all kinds of research work. Literature reviews serve
as a foundation for knowledge progress, make guidelines for plan and practice, provide grounds of
an effect, and, if well guided, have the capacity to create new ideas and directions for a particular
area [1]. Similarly, they carry out as the basis for future research and theory work. This paper
conducts a literature review of stock returns and volatility analysis based on generalized autoregressive
conditional heteroskedastic (GARCH) family models. Volatility refers to the degree of dispersion of
random variables.
Financial market volatility is mainly reflected in the deviation of the expected future value of
assets. The possibility, that is, volatility, represents the uncertainty of the future price of an asset.
This uncertainty is usually characterized by variance or standard deviation. There are currently
two main explanations in the academic world for the relationship between these two: The leverage
effect and the volatility feedback hypothesis. Leverage often means that unfavorable news appears,
stock price falls, leading to an increase in the leverage factor, and thus the degree of stock volatility
increases. Conversely, the degree of volatility weakens; volatility feedback can be simply described as
unpredictable stock volatility that will inevitably lead to higher risk in the future.
There are many factors that affect price movements in the stock market. Firstly, there is the impact
of monetary policy on the stock market, which is extremely substantial. If a loose monetary policy is
implemented in a year, the probability of a stock market index rise will increase. On the other hand,
if a relatively tight monetary policy is implemented in a year, the probability of a stock market index
decline will increase. Secondly, there is the impact of interest rate liberalization on risk-free interest
rates. Looking at the major global capital markets, the change in risk-free interest rates has a greater
correlation with the current stock market. In general, when interest rates continue to rise, the risk-free
interest rate will rise, and the cost of capital invested in the stock market will rise simultaneously. As a
result, the economy is expected to gradually pick up during the release of the reform dividend, and the
stock market is expected to achieve a higher return on investment.
Volatility is the tendency for prices to change unexpectedly [2], however, all kinds of volatility
is not bad. At the same time, financial market volatility has also a direct impact on macroeconomic
and financial stability. Important economic risk factors are generally highly valued by governments
around the world. Therefore, research on the volatility of financial markets has always been the focus
of financial economists and financial practitioners. Nowadays, a large part of the literature has studied
some characteristics of the stock market, such as the leverage effect of volatility, the short-term memory
of volatility, and the GARCH effect, etc., but some researchers show that when adopting short-term
memory by the GARCH model, there is usually a confusing phenomenon, as the sampling interval
tends to zero. The characterization of the tail of the yield generally assumes an ideal situation, that is,
obeys the normal distribution, but this perfect situation is usually not established.
Researchers have proposed different distributed models in order to better describe the thick tail
of the daily rate of return. Engle [3] first proposed an autoregressive conditional heteroscedasticity
model (ARCH model) to characterize some possible correlations of the conditional variance of the
prediction error. Bollerslev [4] has been extended it to form a generalized autoregressive conditional
heteroskedastic model (GARCH model). Later, the GARCH model rapidly expanded and a GARCH
family model was created.
Entropy 2020, 22, 522 3 of 18

When employing GARCH family models to analyze and forecast return volatility, selection of
input variables for forecasting is crucial as the appropriate and essential condition will be given for
the method to have a stationary solution and perfect matching [5]. It has been shown in several
findings that the unchanged model can produce suggestively different results when it is consumed
with different inputs. Thus, another key purpose of this literature review is to observe studies which
use directional prediction accuracy model as a yardstick from a realistic point of understanding and has
the core objective of the forecast of financial time series in stock market return. Researchers estimate
little forecast error, namely measured as mean absolute deviation (MAD), root mean squared error
(RMSE), mean absolute error (MAE), and mean squared error (MSE) which do not essentially interpret
into capital gain [6,7]. Some others mention that the predictions are not required to be precise in terms
of NMSE (normalized mean squared error) [8]. It means that finding the low rate of root mean squared
error does not feed high returns, in another words, the relationship is not linear between two.
In this manuscript, it is proposed to categorize the studies not only by their model selection
standards but also for the inputs used for the return volatility as well as how precise it is spending them
in terms of return directions. In this investigation, the authors repute studies which use percentage of
success trades benchmark procedures for analyzing the researchers’ proposed models. From this theme,
this study’s authentic approach is compared with earlier models in the literature review for input
variables used for forecasting volatility and how precise they are in analyzing the direction of the related
time series. There are other review studies on return and volatility analysis and GARCH-family based
financial forecasting methods done by a number of researchers [9–13]. Consequently, the aim of this
manuscript is to put forward the importance of sufficient and necessary conditions for model selection
and contribute for the better understanding of academic researchers and financial practitioners.
Systematic reviews have most notable been expanded by medical science as a way to synthesize
research recognition in a systematic, transparent, and reproducible process. Despite the opportunity of
this technique, its exercise has not been overly widespread in business research, but it is expanding
day by day. In this paper, the authors have used the systematic review process because the target
of a systematic review is to determine all empirical indication that fits the pre-decided inclusion
criteria or standard of response to a certain research question. Researchers proved that GARCH is the
most suitable model to use when one has to analysis the volatility of the returns of stocks with big
volumes of observations [3,4,6,9,13]. Researchers observe keenly all the selected literature to answer
the following research question: What are the effective GARCH models to recommend for performing
market volatility and return analysis?
The main contribution of this paper is found in the following four aspects: (1) The best GARCH
models can be recommended for stock market returns and volatilities evaluation. (2) The manuscript
considers recent papers, 2008 to 2019, which have not been covered in previous studies. (3) In this
study, both qualitative and quantitative processes have been used to examine the literature involving
stock returns and volatilities. (4) The manuscript provides a study based on journals that will help
academics and researchers recognize important journals that they can denote for a literature review,
recognize factors motivating analysis stock returns and volatilities, and can publish their worth
study manuscripts.

2. Methodology
A systematic literature examination of databases should recognize as complete a list as possible of
relevant literature while keeping the number of irrelevant knocks small. The study is conducted by
a systematic based literature review, following suggestions from scholars [14,15]. This manuscript
was led by a systematic database search, surveyed by cross-reference snowballing, as demonstrated
in Figure 1, which was adapted from Geissdoerfer et al. [16]. Two databases were selected for the
literature search: Scopus and Web-of-Science. These databases were preferred as they have some major
depositories of research and are usually used in literature reviews for business research [17].
Entropy 2020, 22, 522 4 of 18
Entropy ,2020, 22 x 4 of 20

Figure 1. Literature review method.

Figure 1. Literature review method.
At first stage, a systematic literature search is managed. The keywords that were too broad or
At first stage, a systematic literature search is managed. The keywords that were too broad or
likely to be recognized in literature-related keywords with other research areas are specified below.
likely to be recognized in literature-related keywords with other research areas are specified below.
As shown in Table 1, the search string “market return” in ‘Title‘ respectively “stock market return”,
As shown in Table 1, the search string “market return” in ‘Title‘ respectively “stock market return”,
“stock market volatility”, “stock market return volatility”, “GARCH family model* for stock return”,
“stock market volatility”, “stock market return volatility”, “GARCH family model* for stock return”,
“forecasting stock return”, and GARCH model*, “financial market return and volatility” in ‘Topic’
“forecasting stock return”, and GARCH model*, “financial market return and volatility” in ‘Topic’
separately ‘Article title, Abstract, Keywords’ were used to search for reviews of articles in English on
separately ‘Article title, Abstract, Keywords’ were used to search for reviews of articles in English on
the Elsevier Scopus and Thomson Reuters Web-of-Science databases. The asterisk (*) is a commonly
the Elsevier Scopus and Thomson Reuters Web-of-Science databases. The asterisk (*) is a commonly
used wildcard symbol that broadens a search by finding words that start with the same letters.
used wildcard symbol that broadens a search by finding words that start with the same letters.
Table 1. Literature search strings for database.
Table 1. Literature search strings for database.
Number of Non-Exclusive Results
Search String Search Field Number of Non-Exclusive Results
Scopus Web-of-Science Last Updated
Search
Market String
Return Search Field
Title/Article title 1540 1148Web-of-17 JanuaryLast
2020
Topic/Article title, Scopus
Market volatility 13,892 13,767 Science Updated
17 January 2020
Abstract, Keywords
Topic/ArticleTitle/Article
title,
StockMarket Return
market return title
11,567 1540
13,440 1148 17 January
17/01/2020
2020
Abstract, Keywords
Topic/Article title,
Topic/Article title,
Stock Market
market volatility
volatility Abstract, Keywords 5683 6853
13892 13767 17 January 2020
17/01/2020
Abstract, Keywords
Market return Topic/Article title,
3241 6632 17 January 2020
and volatility Abstract, Keywords
Topic/Article title,
GARCHStockfamily
market return Topic/Article title,
model* 11567 13440 17/01/2020
Abstract, Keywords 53 41 17 January 2020
for stock return Abstract, Keywords
Forecasting stock return Topic/Article title,
227
Topic/Article title, 349 17 January 2020
and GARCH model*
Stock market volatility Abstract, Keywords 5683 6853 17/01/2020
Financial market return Abstract,
Topic/Article title, Keywords
2212 2638 17 January 2020
and volatility Abstract, Keywords
Topic/Article title,
Market return and volatility 3241 6632 17/01/2020
Abstract, Keywords

GARCH family model* for Topic/Article title,

53 41 17/01/2020
stock return Abstract, Keywords
Entropy 2020, 22, 522 5 of 18

At second stage, suitable cross-references were recognized in this primary sample by first
examining the publications’ title in the reference portion and their context and cited content in the
text. The abstracts of the recognized further publications were examined to determine whether the
paper was appropriate or not. Appropriate references were consequently added to the sample and
analogously scanned for appropriate cross-references. This method was continual until no additional
appropriate cross-references could be recognized.
At the third stage, the ultimate sample was assimilated, synthesized, and compiled into the
literature review presented in the subsequent section. The method was revised a few days before
the submission.
Additionally, the list of affiliation criteria in Table 2, which is formed on discussions of the
authors, with the summaries of all research papers were independently checked in a blind system
method. Evaluations were established on the content of the abstract, with any extra information
unseen, and were comprehensive rather than exclusive. In order to check for inter-coder dependability,
an initial sample of 30 abstracts were studied for affiliation by the authors. If the abstract was not
satisfactorily enough, the whole paper was studied. Simply, 4.61 percent of the abstract resulted in
variance between the researchers. The above-mentioned stages reduced the subsequent number of
full papers for examination and synthesis to 50. In order to recognize magnitudes, backgrounds, and
moderators, these residual research papers were reviewed in two rounds of reading.

Table 2. Affiliation criteria.

Affiliation Criteria Rational Explanation

Since this kind of research is not restricted to any
Abstract must express the stock market and GARCH
journals, research on other subjects than stock market
model as the sharp object of this research work.
maybe appears.
Abstract must show clear indication of stock market The focus of the research is to study stock market
volatility and return studies through GARCH return and volatility analysis by GARCH
model robustness. family model.
English language is the leading research language in
Research paper must be written in English language.
the arena of finance.

3. Review of Different Studies

In this paper, a large amount of articles were studied but only a few were well thought out to gather
the quality developed earlier. For every published article, three groups were specified. Those groups
were considered as index and forecast time period, input elements, econometric models, and study
results. The first group namely “index and forecast time period with input elements” was considered
since market situation like emerging, frontier, and developed markets which are important parameters
of forecast and also the length of evaluation is a necessary characteristic for examining the robustness
of the model. Furthermore, input elements are comparatively essential parameters for a forecast model
because the analytical and diagnostic ability of the model is mainly supported on the inputs that a
variable uses. In the second group, “model” was considered forecast models proposed by authors and
other models for assessment. The last group is important to our examination for comparing studies in
relationships of proper guiding return and volatility, acquired by using recommended estimate models,
named the “study results” group.
Measuring the stock market volatility is an incredibly complex job for researchers. Since volatility
tends to cluster, if today’s volatility is high, it is likely to be high tomorrow but they have also had an
attractive high hit rate with major disasters [4,7,11,12]. GARCH models have a strong background,
recently having crossed 30 years of the fast progress of GARCH-type models for investigating the
volatility of market data. Literature of eligible papers were clustered in two sub groups, the first group
containing GARCH and its variations model, and the second group containing bivariate and other
multivariate GARCH models, summarized in a table format for future studies. Table 3 explains the
review of GARCH and its variations models. The univariate GARCH model is for a single time series.
Entropy 2020, 22, 522 6 of 18

It is a statistical model that is used to analyze a number of different kinds of financial data. Financial
institutions and researchers usually use this model to estimate the volatility of returns for stocks,
bonds, and market indices. In the GARCH model, current volatility is influenced by past innovation to
volatility. GARCH models are used to model for forecast volatility of one time series. The most widely
used GARCH form is GARCH (1, 1) and this has some extensions.
In a simple GARCH model, the squared volatility σ2t is allowed to change on previous squared
volatilities, as well as previous squared values of the process. The conditional variance satisfies the
following form: σ2t = α0 + α1 2t−1 + . . . + αq 2t−q + β1 σ2t−1 + . . . + βp σ2t−p where, αi > 0 and βi > 0. For the
GARCH model, residuals’ lags can substitute by a limited number of lags of conditional variances,
which abridges the lag structure and in addition the estimation method of coefficients. The most often
used GARCH model is the GARCH (1, 1) model. The GARCH (1, 1) process is a covariance-stationary
white noise process if and only if α1 + β < 1. The variance of the covariance-stationary process is given
by α1 / (1 − α1 − β). It specifies that σ2n is based on the most recent observation of ϕ2t and the most
recent variance rate σ2n−1 . The GARCH (1, 1) model can be written as σ2n = ω + αϕ2n−1 + βσ2n−1 and this
is usually used for the estimation of parameters in the univariate case.
Though, GARCH model is not a complete model, and thus could be developed, these
developments are detected in the form of the alphabet soup that uses GARCH as its key component.
There are various additions of the standard GARCH family models. Nonlinear GARCH (NGARCH)
was proposed by Engle and Ng [18]. The conditional covariance equation is in the form:
σ2t = γ + α(εt−1 − ϑσt−1 )2 + βσ2t−1 , where α, β, γ > 0. The integrated GARCH (IGARCH) is a restricted
version of the GARCH model, where the sum of all the parameters sum up to one and this model was
introduced by Engle and Bollerslev [19]. Its phenomenon might be caused by random level shifts in
volatility. The simple GARCH model fails in describing the “leverage effects” which are detected in the
financial time series data. The exponential GARCH (EGARCH) introduced by Nelson [5] is to model
the logarithm of the variance rather than the level and this model accounts for an asymmetric response
to a shock. The GARCH-in-mean (GARCH-M) model adds a heteroskedasticity term into the mean
equation and was introduced by Engle et al. [20]. The quadratic GARCH (QGARCH) model can handle
asymmetric effects of positive and negative shocks and this model was introduced by Sentana [21].
The Glosten-Jagannathan-Runkle GARCH (GJR-GARCH) model was introduced by Glosten et al. [22],
its opposite effects of negative and positive shocks taking into account the leverage fact. The threshold
GARCH (TGARCH) model was introduced by Zakoian [23], this model is also commonly used to
handle leverage effects of good news and bad news on volatility. The family GARCH (FGARCH)
model was introduced by Hentschel [24] and is an omnibus model that is a mix of other symmetric or
asymmetric GARCH models. The COGARCH model was introduced by Klüppelberg et al. [25] and
is actually the stochastic volatility model, being an extension of the GARCH time series concept to
continuous time. The power-transformed and threshold GARCH (PTTGARCH) model was introduced
by Pan et al. [26], this model is a very flexible model and, under certain conditions, includes several
ARCH/GARCH models.
Based on the researchers’ articles, the symmetric GARCH (1, 1) model has been used widely to
forecast the unconditional volatility in the stock market and time series data, and has been able to
simulate the asset yield structure and implied volatility structure. Most researchers show that GARCH
(1, 1) with a generalized distribution of residual has more advantages in volatility assessment than
other models. Conversely, the asymmetry influence in stock market volatility and return analysis was
beyond the descriptive power of the asymmetric GARCH models, as the models could capture more
specifics. Besides, the asymmetric GARCH models can incompletely measure the effect of positive or
negative shocks in stock market return and volatility, and the GARCH (1, 1) comparatively failed to
accomplish this fact. In asymmetric effect, the GJR-GARCH model performed better and produced a
higher predictable conditional variance during the period of high volatility. In addition, among the
asymmetric GARCH models, the reflection of EGARCH model appeared to be superior.
Entropy 2020, 22, 522 7 of 18

Table 3. Different literature studies based on generalized autoregressive conditional heteroskedastic

(GARCH) and its variations models.

Authors Data Set Econometric Models Study Results

Daily returns data, TASE
Findings suggest that one can improve
indices, the TA25 index
overall estimation by using the
Alberg et al. period October 1992 to GARCH, EGARCH, and
asymmetric GARCH model and the
[27] May 2005 and TA100 APARCH model
EGARCH model is a better predictor
index period July 1997 to
than the other asymmetric models.
May 2005
Nigerian stock market returns show
that volatility is persistent and there is a
Daily returns over the
leverage effect. The study found little
Olowe [28] period January 2004 to EGARCH in mean model
evidence open the relationship between
March 2009
stock returns and risk as measures by its
aim volatility.
Examine the interaction They found that information size and
of volatility and volume direction have a negligible effect on
Girard &
in 79 traded companies GARCH model conditional volatility and, as a result,
Omran [29]
in Cairo and Alexandria the presence of noise trading and
Stock Exchange speculative bubbles is suspected.
The study concludes that EGARCH
Six years’ data from model is that best fitted process for all
ARCH, GARCH (1,1),
March 2003 to March the sample data based on AIC
Neokosmidis EGARCH (1,1)
2009 for four US stock minimum criterion. It is observed that
[30] Multivariate
indices i.e., Dow Jones, there are high volatility periods at the
volatility models
Nasdaq, NYSE, S&P500 beginning and at the end of our
estimation period for all stock indices.
Rolling window moving
average estimator, A GARCH and VIX models, proved to
Daily OHLC values of
Tripathy & EWMA, GARCH models, be the best methods. Extreme value
NSE index returns from
Alana [31] Extreme value indicators, models fail to perform because of low
2005–2008
and Volatility frequency data.
index (VIX)
They demonstrate that the EGARCH
model provides the most accurate daily
Taiwanese stock index GARCH type models:
volatility forecasts, while the
Liu & Hung futures prices, daily data GARCH, GJR-GARCH,
performances of the standard GARCH
[32] April 2001 to QGARCH, EGARCH,
model and the GARCH models with
December 2008 IGARCH, CGARCH
highly persistent and long-memory
characteristics are relatively poor.
Daily closing price from BDS Test, ARCH-LM test, Persistence of volatility is more than
Joshi [33]
January 2005 to May 2009 and GARCH (1,1) model Indian stock market
The EGARCH and AGARCH models
can detect the asymmetric effect well in
Wong & Hong Kong stock market response to both good news and bad
GARCH family models
Cheung [34] from 1984 to 2009 news. By comparing different GARCH
models, they find that it is the EGARCH
model that best fits the Hong Kong case.
Taiwan Stock Exchange
(TAIEX), the S&P 500 There is a significant price transmission
Chang et al. Index, and the Nasdaq effect and volatility asymmetry among
GJR-GARCH model (1,1)
[35] Composite Index for the the TAIEX, the US spot index, and US
period of January, 2000 to index futures.
January, 2004
Time varying beta risk of industry sector
Shanghai stock exchange indices in Shanghai stock results
Ten industries sector industries respond positively to rises in
Volatility estimation AR
Koutmos [36] indices daily data such non-diversifiable risk. Reports on
(1), EGARCH (1,1)
ranging from January the volatility persistence of the various
2009 to June 2012 industry sectors and identifies which
industries have high and low persistence.
Entropy 2020, 22, 522 8 of 18

Table 3. Cont.

Authors Data Set Econometric Models Study Results

New York, London and Granger causality test,
Evidence shows that five stock markets
Tokyo as well as those of VAR model, VEC model,
are in the process of increasing
Hong Kong, Shanghai variance decomposition,
Chen [37] integration. The periodic break down of
and Shenzen the period impulse response
co-integrating relationship is
of January 1993 to function, co-integration
advantageous to foreign investors.
March 2010 and GARCH models
Saudi stock market by The results provide evidence of the
GARCH (1,1) model,
using (Tadawul All Share existence of a positive risk premium,
Abdalla & including both
Index; TASI) over the which supports the positive correlation
Suliman [38] symmetric and
period of January 2007 to hypothesis between volatility and the
asymmetric models
November 2011 expected stock returns.
Daily closing price of Absence of long memory in return
Maheshchandra BSE and NSE stock ARFIMA and series of the Indian stock market.
[39] indices period of January FIGARCH models Strong evidence of long memory in
2008 to August 2011 conditional variance of stock indices.
The paper examined the leverage effect
ARMA and GARCH and information symmetry. Both ARCH
China stock indices, six
family model, GARCH and GARCH models can explain
Li & Wang [40] industry indexes,
(1,1), TGARCH (1,1), volatility clustering phenomena and
January 2006 to June 2012
EGARCH (1,1) have been quite successful in modeling
real data in various applications.
An asymmetric effect of negative news
Daily closing prices of
exists in the Chinese stock markets. The
the SHCI and SZCI
Hou [41] GARCH family models EGARCH and the GJR models tend to
indices from January
overestimate the volatility and returns
1997 to August 2007
in the high-volatility periods.
Daily closing data for
ADF Test, Johansen’s Empirical results found that one-month
Purohit et al. November 2009 to March
co-integration test, and futures do not bring volatility in
[42] 2013, NIFTY and NIFTY
GARCH (1,1) model the VIX.
Junior indices
Daily data of sectoral Return of the BSE sectoral indices
ARMA (1,1), and
Shalini [43] indices for the period of exhibit characteristics of normality,
GARCH (1,1) models
January 2001 to June 2014 stationarity, and heteroscedasticity.
MENA region’s markets are higher
between extremes than between
MENA stock market ordinary observations registered during
indices of daily normal periods, but they offer many
Ghorbel &
observations for the GARCH family models opportunities to investors to diversify
Attafi [44]
period January 2007 to their portfolio and reduce their degree
March 2012 of risk aversion. Dependence between
markets increases during
volatile periods.
The daily closing prices
The result of that volatility varies over
of S&P CNX500 of
time and constant variance assumption
Gupta et al. National Stock Exchange GARCH, TGARCH, and
is inconsistent. The empirical evidence
[45] for the period from EGARCH models
indicated the presence of time
January 2003 to
varying volatility.
December 2012
Results of ANN models will be
compared with time series model using
S&P500 market daily GARCH family models. The use of the
Nadhem et al. returns the sample novel model for conditional stock
GARCH family models
[46] period from July 1996 to markets returns volatility can handle
May 2006 the vast amount of nonlinear data,
simulate their relationship, and give a
moderate solution for the hard problem.
Entropy 2020, 22, 522 9 of 18

Table 3. Cont.

Authors Data Set Econometric Models Study Results

The daily closing prices The result proves that GARCH and
of S&P CNX Nifty Index Both symmetric and TGARCH estimations are found to be
Banumathy &
for the period from asymmetric models the most appropriate model to capture
Azhagaiah [47]
January 2003 to GARCH (1,1) symmetric and asymmetric
December 2012 volatility respectively.
Both symmetric and Study indicate that existence of the
Central and Eastern
asymmetric GARCH leverage effect in case of stock markets
Europe region for the
Okičić [48] models, i.e.,; GARCH, from the CEE region, which indicates
period from October
IGARCH, EGARCH, that negative shocks increase the
2005 to December 2013
GJR, and PGARCH volatility more than positive shocks.
Findings support asymmetric effects in
Australian share markets
the Australian share markets, and by
Lum & Islam data for the period of
GARCH family models incorporating them into the GARCH-M
[49] January 1988 to
models yield better results in both
December 2004
financial and econometric terms.
Asian countries, i.e.,
Result revealed absence of any spillover
Pakistan, India, Sri
effect of volatility across Indian and
Lanka, China, Japan, and
Jebran & Iqbal Chinese stock markets. However,
Hong Kong. The daily GARCH model
[50] bidirectional and unidirectional
data was considered
spillover effects have been established
from the period January
across other Asian markets.
1999 to January 2014
The PTTGARCH models both with
single regime and Markov regime
CSI 300 index consider GARCH, EGARCH,
switching outperform other models in
Yang et al. [51] for the period of July APARCH, and
estimation and prediction of the
2013 to January 2016 PTTGARCH models
volatilities of the return series within
the sample and out-of-sample.
The existence of volatility clustering and
India stock market daily leverage effect in the market and the
Varughese & GARCH, EGARCH, and
data for the period of investment activities of foreign portfolio
Mathew [52] TARCH models
April 2003 to March 2015 investment have had a significant
impact on the volatility of stock market.
India NIFTY Volatility
Index (IVIX) and CNX
NIFTY Index (NIFTY), The study finds that volatility index is a
Australia S&P/ASX 200 biased forecast but possesses relevant
Volatility Index (AVIX) information in explaining future
Pati et al. [53] and S&P/ASX 200 Index GARCH family models realized volatility. GARCH family
(ASX), and Hong Kong models suggest that it contains relevant
Hang Seng Volatility information in describing the
Index (VHSI) and HSI, volatility process.
consider the period of
January 2008 to July 2016
GARCH-based forecast is more stable
whilst the entropy-based forecast reacts
The EUR/JPY exchange faster to new information. VAR model
rate of daily prices and GARCH model, Entropy, performs the worst failing the tests,
Pele et al. [54]
time period considered and VAR model whilst the normal GARCH model
from 1999 to 2005 passes all tests. But the best results
overall are obtained by the
entropy-based forecast model.
The volatility and return spillovers
Emerging six Asian stock behave very differently over time,
markets daily stock GARCH model, Granger during the pre-crisis, crisis, and post
Bhowmik et al.
market index data from Causality Tests, and crisis periods. Importantly, the Asian
[55]
January 2002 to VAR model emerging stock markets interaction was
December 2016 less before the global financial
crisis period.
Entropy 2020, 22, 522 10 of 18

Table 3. Cont.

Authors Data Set Econometric Models Study Results

Article demonstrates its validity
Daily negative returns of through a simulation study and real
the Google’s stock price data analysis. The result indicates that
Kim & Lee [56] and Dow Jones index, PTTGARCH model for practical applications, the
November 2004 to underlying innovation distribution
November 2016 should be modeled in a more
refined manner.
The findings reported an evidence of
volatility, which exhibited the clustering
Amudha & NSE from the period of
and persistence of stocks. The return
Muthukamu April 2003 to GARCH family models
series of the stocks selected for the
[57] September 2015
study were found to react on good and
bad news asymmetrically.
US stock return a daily
The SVI variable exhibits the best
frequency S&P500 index
Chronopoulos performance among all considered
covering the period from GARCH family models
et al. [58] models and SVI variable offers the
January 2004 to
highest gains for investors.
December 2016
The returns and volatility linkages exist
BSE 30, SSE composite,
between the emerging Asian markets
DSEX, FBMKLCI, PSEi,
and the developed stock markets. The
Bhowmik & KOSPI indices data of GARCH family models
volatilities to unexpected shocks in
Wang [59] daily closing prices for and VAR model
various markets, especially, come from
the period of January
neighboring country markets and more
2007 to 2016
developed country markets.
Model shows the existence of a positive
Borsa Istanbul sector and statistically significant relationships
Kapusuzoglu indices of daily data over between trading volume and the
GARCH model
& Ceylan [60] the period of October number of information events makes
1987 to January 2017 the variability of the sector indices
to increase.
High frequency data, The results show that China’s stock
stock market policies market was mainly driven by
GARCH-M and
Wang et al. [61] issued related news, government policies rather than
EGARCH-M models
January 2014 to economic fundamentals, as measured
August 2015 by GDP, PPI, and PMI.
The study indicates that symmetric
Nifty 50 and BSE Sensex
information is not suitable for a certain
Shanthi & daily data from both
GARCH, TGARCH, and period considered in this study. The
Thamilselvan indices over the period
EGARCH models TGARCH model outperformed all the
[62] of January 1995 to
models due to the availability
December 2015
of information.
Study suggests that none of the sample
The data consists of daily,
Asian emerging stock markets follow
weekly, and monthly Unit root tests, serial
Random-walk and hence all are
closing prices of six correlation test, runs test,
Bhowmik & weak-form efficient markets except
emerging stock market VR tests, ARMA,
Wang [63] South Korean Markets. Additionally,
indexes in Asian GARCH model, and
short-term variants of the technical
countries from the BDS test
trading rules have better predictive
period of 2007 to 2016
ability than long-term variants.
The study suggested that the P-GARCH
BSE and NSE daily data
Dixit & model is most suitable to predict and
of the closing value from GARCH family models
Agrawal [64] forecast the stock market volatility for
April 2011 to March 2017
BSE and NSE markets.
Entropy 2020, 22, 522 11 of 18

Table 3. Cont.

Authors Data Set Econometric Models Study Results

Brazil, India, Indonesia
and Pakistan stock
The result confirms the presence of
markets return of the
Kumar & volatility clustering and leverage effect
average price (open, GARCH family models
Biswal [65] that is that good news affects the future
close, high, and low) for
stock market than bad news.
January 2014 to
October 2018
Notes: APARCH (Asymmetric Power ARCH), AIC (Akaike Information Criterion), OHLC (Open-High-Low-Close
Chart), NSE (National Stock Exchange of India), EWMA (Exponentially Weighted Moving Average), CGARCH
(Component GARCH), BDS (Brock, Dechert & Scheinkman) Test, ARCH-LM (ARCH-Lagrange Multiplier) test, VAR
(Vector Autoregression) model, VEC (Vector Error Correction) model, ARFIMA (Autoregressive Fractional Integral
Moving Average), FIGARCH (Fractionally Integrated GARCH), SHCI (Shanghai Stock Exchange Composite Index),
SZCI (Shenzhen Stock Exchange Component Index), ADF (Augmented Dickey–Fuller) test, BSE (Bombay Stock
Exchange), and PGARCH (Periodic GARCH) are discussed.

Table 4 has explained the review of bivariate and other multivariate GARCH models. Bivariate
model analysis was used to find out if there is a relationship between two different variables. Bivariate
model uses one dependent variable and one independent variable. Additionally, the Multivariate
GARCH model is a model for two or more time series. Multivariate GARCH models are used
to model for forecast volatility of several time series when there are some linkages between them.
Multivariate model uses one dependent variable and more than one independent variable. In this case,
the current volatility of one time series is influenced not only by its own past innovation, but also by
past innovations to volatilities of other time series.
The most recognizable use of multivariate GARCH models is the analysis of the relations
between the volatilities and co-volatilities of several markets. A multivariate model would create
a more dependable model than separate univariate models. The vector error correction (VEC)
models is the first MGARCH model which was introduced by Bollerslev et al. [66]. This model is
typically related to subsequent  formulations.
 P The model can be expressed in the following form:
Pq 0 p
 
vech (Ht ) = C + j=1 X j vech t− j t− j + j=1 Y j vech Ht− j where vech is an operator that stacks the
columns of the lower triangular part of its argument square matrix and Ht is the covariance matrix of the
residuals. The regulated version of the VEC model is the DVEC model and was also recommended by
Bollerslev et al. [66]. Compared to the VEC model, the estimation method proceeded far more smoothly
in the DVEC model. The Baba-Engle-Kraft-Kroner (BEKK) model was introduced by Baba et al. [67]
and is an innovative parameterization of the conditional variance matrix Ht . The BEKK model
accomplishes the positive assurance of the conditional covariance by conveying the model in a way that
this property is implied by the model structure. The Constant Conditional Correlation (CCC) model
was recommended by Bollerslev [68], to primarily model the conditional covariance matrix circuitously
by estimating the conditional correlation matrix. The Dynamic Conditional Correlation (DCC) model
was introduced by Engle [69] and is a nonlinear mixture of univariate GARCH models and also a
generalized variety of the CCC model. To overcome the inconveniency of huge number of parameters,
the O-GARCH model was recommended by Alexander and Chibumba [70] and consequently developed
by Alexander [71,72]. Furthermore, a multivariate GARCH model GO-GARCH model was introduced
by Bauwens et al. [73].
Entropy 2020, 22, 522 12 of 18

Table 4. Different literature studies based on bivariate and other multivariate GARCH models.

Authors Data Set Econometric Models Study Results

There is significant positive volatility
15 world indices for the spillover from other markets to Indian
AR-GARCH, bivariate
Singh et al. period of January 2000 to market, mainly from Hong Kong, Korea,
VAR, Multivariate
[74] February 2008 have Japan, and Singapore and US market.
GARCH (BEKK) model
been considered Indian market affects negatively the
volatility of US and Pakistan.
Daily returns data from Arabian Gulf Cooperation Council
February 2003 to January markets exhibit significant own and
MGARCH and
Rao [75] 2006, Arabian Gulf cross spillover of innovations and
VAR models
Cooperation Council volatility spillover and persistence in
equity markets data these markets.
S&P 500, NIKKE 225,
ARCH, GARCH models,
KSE 100, BSE 30, Hang Time varying correlation increases in
Maniya & GARCH-BEKK model
Seng indices. Daily bearish spells whereas bullish periods
Magnnsson correlation, unit root
closing Index and data do not have a big “Statistical” impact
[76] tests,
from January 1989 to on correlation.
granger-causality test
December 2009
The study found the existence of an
Daily returns of Prague
increasing trend in conditional
stock exchange index
correlations among a whole European
Princ [77] and other 11 major stock DCC-MVGARCH model
region. Results show the unidirectional
indices during 1994
influence of foreign markets affecting
to 2009
Czech market.
They found that news shocks in the
Japanese currency market account for
Daily data of Japanese
volatility transmission in eight of the 10
Yong et al. [78] stock over the study BEKK-GARCH model
industrial sectors considered. They also
period 1994–2007
found that significant asymmetric
effects in five of these industries.
Positive return spillover effects are only
Weekly stock market unidirectional and run from both US
M-GARCH Model,
data of Australia, and UK (the bigger markets) to
Athukoralalage Diagonal BEKK model
Singapore, UK, and the Australia and Singapore (the smaller
[79] ARCH, and GARCH
US for the period from markets). Shocks arising from the US
techniques
Jan 1992 to June 2010 market can impact on all of the other
markets in the sample.
Five sectors daily data International financial markets are not
Kouki et al. covering period from VAR Framework one lag, integrated in all the sectors. Results find
[80] January 2002 to BEKK (1,1) model that the three highly integrated sectors
October 2009 are bank, real estate, and oil.
The weekly closing stock
Results provide strong evidence that the
indexes and local
relationship between stock and foreign
currency and exchange
Walid et al. Markov-Switching- exchange market is regime dependent
rates used for four
[81] EGARCH model and stock price volatility responds
emerging markets, data
asymmetrically to events in the foreign
from December 1994 to
exchange market.
March 2009
The results show that global and
Daily closing prices of six AR (1) model, domestic economic uncertainty as well
largest industrial sector MV-GARCH models, as local asset market segment
Katzke [82] composite total return DCC models, VECH, and significantly influences both the short
indices during January BEKK techniques, and run dynamics and the aggregate level of
2002 to April 2013 GJR-GARCH model co-movement between local
sector pairs.
Entropy 2020, 22, 522 13 of 18

Table 4. Cont.

Authors Data Set Econometric Models Study Results

The past returns on NIKKEI influenced
significantly current period returns of
TAIEX, yet there was no such influence
flowing from past returns of TAIEX to
TAIEX and Nikkei from
the current returns on NIKKEI index.
both indices over the
Peng et al. [83] Bi-EGARCH model Furthermore, the two stock markets are
period of January, 2000 to
more sensitive to falling rather than
March, 2016
rising trends of each other, implying
that there is a mutual tendency between
these markets to crash due to a retreat in
the counterpart market.
The network entropy indices increased
in the period of the market crash.
GEM index china, daily DCC-MV-GARCH
Equity market-trading activity and
return data over the model, bivariate
Lv et al. [84] network entropy were informationally
period of January 2014 to EGARCH model and
efficient in the long run and the more
June 2018 VECM model
heterogeneous the stock network is, the
higher market returns.

The bivariate models showed achieve better in most cases, compared with the univariate
models [85]. MGARCH models could be used for forecasting. Multivariate GARCH modeling
delivered a realistic but parsimonious measurement of the variance matrix, confirming its positivity.
However, by analyzing the relative forecasting accuracy of the two formulations, BEKK and DCC,
it could be deduced that the forecasting performance of the MGARCH models was not always
satisfactory. By comparing it with the other multivariate GARCH models, BEKK-GARCH model
was comparatively better and flexible but it needed too many parameters for multiple time series.
Conversely, for the area of forecasting, the DCC-GARCH model was more parsimonious. In this
regard, it was significantly essential to balance parsimony and flexibility when modeling multivariate
GARCH models.
The current systematic review has identified 50 research articles for studies on significant aspects
of stock market return and volatility, review types, and GARCH model analysis. This paper noticed that
all the studies in this review used an investigational research method. A literature review is necessary
for scholars, academics, and practitioners. However, assessing various kinds of literature reviews can
be challenging. There is no use for outstanding and demanding literature review articles, since if they
do not provide a sufficient contribution and something that is recent, it will not be published. Too often,
literature reviews are fairly descriptive overviews of research carried out among particular years that
draw data on the number of articles published, subject matter covered, authors represented, and maybe
methods used, without conducting a deeper investigation. However, conducting a literature review
and examining its standard can be challenging, for this reason, this article provides some rigorous
literature reviews and, in the long run, to provide better research.

4. Conclusions
Working on a literature review is a challenge. This paper presents a comprehensive literature
which has mainly focused on studies on return and volatility of stock market using systematic review
methods on various financial markets around the world. This review was driven by researchers’
available recommendations for accompanying systematic literature reviews to search, examine, and
categorize all existing and accessible literature on market volatility and returns [16]. Out of the
435 initial research articles located in renowned electronic databases, 50 appropriate research articles
were extracted through cross-reference snowballing. These research articles were evaluated for the
quality of proof they produced and were further examined. The raw data were offered by the authors
from the literature together with explanations of the data and key fundamental concepts. The outcomes,
Entropy 2020, 22, 522 14 of 18

in this research, delivered future magnitudes to research experts for further work on the return and
volatility of stock market.
Stock market return and volatility analysis is a relatively important and emerging field of research.
There has been plenty of research on financial market volatility and return because of easily increasing
accessibility and availability of researchable data and computing capability. The GARCH type models
have a good model on stock market volatilities and returns investigation. The popularity of various
GARCH family models has increased in recent times. Every model has its specific strengths and
weaknesses and has at influence such a large number of GARCH models. To sum up the reviewed
papers, many scholars suggest that the GARCH family model provides better results combined
with another statistical technique. Based on the study, much of the research showed that with
symmetric information, GARCH (1, 1) could precisely explain the volatilities and returns of the data
and when under conditions of asymmetric information, the asymmetric GARCH models would be
more appropriate [7,32,40,47,48]. Additionally, few researchers have used multivariate GARCH model
statistical techniques for analyzing market volatility and returns to show that a more accurate and
better results can be found by multivariate GARCH family models. Asymmetric GARCH models,
for instance and like, EGARCH, GJR GARCH, and TGARCH, etc. have been introduced to capture the
effect of bad news on the change in volatility of stock returns [42,58,62]. This study, although short
and particular, attempted to give the scholar a concept of different methods found in this systematic
literature review.
With respect to assessing scholars’ articles, the finding was that rankings and specifically only one
GARCH model was sensitive to the different stock market volatilities and returns analysis, because the
stock market does not have similar characteristics. For this reason, the stock market and model choice
are little bit difficult and display little sensitivity to the ranking criterion and estimation methodology,
additionally applying software is also another matter. The key challenge for researchers is finding
the characteristics in stock market summarization using different kinds of local stock market returns,
volatility detection, world stock market volatility, returns, and other data. Additional challenges are
modeled by differences of expression between different languages. From an investigation perception,
it has been detected that different authors and researchers use special datasets for the valuation of their
methods, which may put boundary assessments between research papers.
Whenever there is assurance that scholars build on high accuracy, it will be easier to recognize
genuine research gaps instead of merely conducting the same research again and again, so as to
progress better and create more appropriate hypotheses and research questions, and, consequently,
to raise the standard of research for future generation. This study will be beneficial for researchers,
scholars, stock exchanges, regulators, governments, investors, and other concerned parties. The current
study also contributes to the scope of further research in the area of stock volatility and returns.
The content analysis can be executed taking the literature of the last few decades. It determined that
a lot of methodologies like GARCH models, Johansen models, VECM, Impulse response functions,
and Granger causality tests are practiced broadly in examining stock market volatility and return
analysis across countries as well as among sectors with in a country.

Author Contributions: R.B. and S.W. proposed the research framework together. R.B. collected the data, and wrote
the document. S.W. provided important guidance and advice during the process of this research. All authors have
read and agreed to the published version of the manuscript.
Funding: This research received no external funding.
Conflicts of Interest: The authors declare no conflict of interest.

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