Econometric Modelling of Financial Time Series

Abstract

This paper examines the relationship between assets, capital, liabilities and liquidity in South Africa using the Johansen cointegration analysis and the GARCH model using times data for the period 02/2005 to 06/2018. The results obtained from the study suggests that the time series are integrated of order one, I(1). The findings from the Johansen cointegration test indicated that the variables have a long run cointegrating relationship. Furthermore, the results from the GARCH model revealed that the estimated model has statistically significant coefficients at 5% significance level. Additionally, results revealed that assets have a positive relationship with capital, liabilities and liquidity. This implies that a percentage increase in assets will result to a percentage increase in capital, liabilities and liquidity. The results also revealed that shocks decay quickly in the future and that the conditional variance is explosive. The diagnostic tests revealed that the estimated models show the characteristics of a well specified model. The recommendations for future studies were formulated. Keywords:   ARCH model; Cointegration; Financial time series; GARCH model; VECM; Volatility