Abstract

This paper analyses the impact of political uncertainty on the volatility of the Tunisian stock market from November 2010 to February 2016. In particular, it examines structural breaks in the variance by using the Iterated Cumulative Sums of Squares (ICSS) and modified ICSS algorithms. Asymmetric GARCH models are then extended by taking account regime shifts. Our results suggest that Tunisian stock market volatility is sensitive to local and political events. Large shifts coincide with civil uprisings and periods of political turbulence during the democratic transition and argue that the relationship between volatility and returns reflects the common effects of political factors. Diagnostic tests emphasize the asymmetric volatility response to news. However, there is no evidence that taking into account regime shifts reduces the volatility persistence which leads to think that the Tunisian stock market is well controlled and supervised.

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