Risk Regimes in the Colombian Stock Market

Abstract

In this paper, we seek to test the hypothesis of possible changes in risk levels in Colombianstock market. An AR-SWARCH model is estimated for the returns of the GeneralIndex of Colombia Stock Exchange during the period July 2001-December 2013. Twodifferent risk regimes are identified in the analysis. At the highest risk, the factor thatmeasures how variance increases amounts to 2.23. Those findings highlight the needto consider the transition dynamics between regimes within the analysis by financialpractitioners and regulators, operating in Colombian stock market. Those regimes arealso related to previously detected failures in the literature in terms of informationalefficiency (bubbles), and to significant changes in the size and liquidity of the market.