Investigating Stock Market Volatility in Saudi Arabia Using the GARCH and EGARCH Models

Stock market acts as a key component of an economy by promoting capital creation, improves liquidity by bringing investments to the nation. It promotes economic growth, industrial development and employment. Saudi stock market known as Tadawul plays a significant role in shaping nations development and long term plans while it is also crucial for financial dynamics natively and worldwide. This paper aims to investigate the stock market volatility by applying GARCH and EGARCH models using Tadawul All Share daily price index data taken from 3 July2010 to 19 August2024.The ARCH parameter is significant in descriptive statistics which indicates the presence of heteroskedasticity in squared residuals demonstrating the need of applying GARCH model. Moreover, ARCH and GARCH terms are statistically significant in both models of study. While positive leverage value presence also suggests that, due to existence of asymmetric behavior the negative shocks in markets entail a higher impact than positive shocks in upcoming time period. Through findings of this study the major repercussions in stock market after the 2008 economic crisis can be seen. This study contributes towards the existing literature about stock market volatility research and it can also help investors to better gauge about the unpredictability of stock market shares due to existence of market instability. It also suggests that it is better to invest in diversified markets to lower the risk factor when markets are facing world crisis.