Predictive modeling of return volatility in sustainable investments: An in-depth analysis of ARIMA, GARCH, and ARCH techniques

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This paper aims to forecast the stock price and analyze the return volatility of India’s top three socially responsible companies. This study used ARIMA and GARCH models to forecast the stock price and analyze return volatility. For the analysis, the required time series data are collected from Yahoo Finance from 01-08-2012 to 29-07-2022 of the companies’ Monthly and daily closing stock prices. The socially responsible companies are selected based on India’s sustainability indices. The findings of the study show that the ARIMA (9,1,9) model for HDFC Ltd, ARIMA (10,1,7) for Reliance Industries Ltd, and ARIMA (2,1,2) are suitable models to forecast the stock price. Also, the study’s findings forecasted stock prices from August 2022 to July 2023. The forecasted stock price for July 2023 of HDFC Ltd is INR 2,613.78, Reliance industries Ltd is INR 3,073.75, and ICICI Bank Ltd is INR 857.73. Reliance Industries Ltd (σ2t = 0.9270586) is less volatile, and HDFC Ltd (σ2t = 0.9665041) is more volatile among the three companies, ICICI Bank Ltd (σ2t = 0.9507527) is the second high volatile company. The present study is limited to the top three companies that were selected from the three sustainability indices of BSE. The study is also limited to analysis of past volatility of stock price returns.

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    • Figure 1. Non-stationarity and stationarity of observed data series
    • Figure 2. Correlogram of observed data at first difference of three companies
    • Figure 3. Past and forecasted stock price of HDFC Ltd
    • Figure 4. Past and forecasted stock price of Reliance Industries Ltd
    • Figure 5. Past and forecasted stock price of ICICI Bank Ltd
    • Figure 6. Stock price returns of three companies
    • Figure 7. Correlogram of observed data squared residuals of three companies
    • Figure 8. Stock price return volatility of three companies
    • Table 1. Top three companies falling under all the sustainability indices
    • Table 2. ADF test results of observed data
    • Table 3. ADF test results of data at first difference
    • Table 4. Selected ARIMA (p,d,q) model parameter estimations
    • Table 5. HDFC Ltd, Forecast results
    • Table 6. Reliance Industries Ltd, Forecast results
    • Table 7. ICICI Bank Ltd, Forecast results
    • Table 8. Comparing ARCH and GARCH models
    • Table 9. GARCH model estimation coefficients of three companies
    • Table А1. Summary of literature review
    • Conceptualization
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Data curation
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Formal Analysis
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Investigation
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Methodology
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Project administration
      Srihari G., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Software
      Srihari G., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Supervision
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Validation
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Visualization
      Srihari G., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Writing – original draft
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala
    • Writing – review & editing
      Srihari G., Kusuma T., Chetanraj D. B., J. P. Senthil Kumar, Ravi Aluvala