Modelling Volatility of Pakistan Stock Market Using Family of GARCH Models

The stock market across the globe is regarded as an essential component of modern economic systems. It is significant and acts as an indicator of a nation's economic health. The price of crude oil and exchange rates are two important macroeconomic factors that can have a big influence on the performance of the stock market. Because crude oil is widely used in the production and consumption of energy, its volatility and unpredictability can cause concern in the larger economy. Pakistan's economy is especially vulnerable to fluctuations in oil prices since it imports oil, which makes their interaction with the stock market unique and complex. Changes in exchange rates can have an impact on foreign capital flows, trade balances, and the stability of the economy as a whole. We find the marginal distribution of all series by GARCH models with different error distributions. For KSE 100 index, we select the ARMA (1,1) GARCH (1,1) with skewed student t distribution on the basis of lowest AIC and BIC value.