THE IMPACT OF MARKET INSTABILITY OF FIRM VOLATILITY

Abstract

This paper analyzed volatility association of individual firm with the collective stock
market for the period of January 2011 to December 2015. Using daily basis data,
GARCH model was applied for volatility measurement of 121 listed companies in
Pakistan Stock Exchange. The current study found significant evidence of volatility comovement
between firms and market. The results show that return variation of 74
companies out of 121 are positively correlated with aggregate market volatility.
However, 24 firms come up with negative significant results. Considerable evidence for
size-based effect was initiated through market capitalization. The results show that
large size firm volatility was significantly correlated with aggregate market volatility
i.e. up to (75%) in comparison with small size firms. Finally, the study concludes with a
recommendation for all relevant stakeholders to consider the firm-market volatility in
making strategic organizational decisions especially the ones relevant to risk
management.