Stock price volatility is an essential phenomenon in equity valuation, derivatives markets, risk
management, and portfolio investment decisions. The right measurement of stock volatility is a
demanded task among the equity investment community. Volatility clustering and volatility persistence
are successful assumptions on stock volatility modeling and forecasting. These two volatility
assumptions are mainly driven by the impact of market news on fundamental factors of equity securities.
However, there may have differences in distribution of information between market participants. As a
result of that stock price volatilities may exhibit irrational behaviors which cannot be explained with
fundamental market news
Therefore, fundamental volatility determinants deliver inconsistence
empirical research findings irrespective of the market and its size. This study has examined the impact
of asymmetric information in modeling the stock price volatility with relating to the Colombo Stock
Exchange (CSE) market. In addition to that the role of macroeconomic variability has been examined
for determining the CSE price volatilities. The EGARCH statistical method was undertaken to identify
the impact of asymmetric information behavior in modeling the stock price volatility whereasthe Gross
Domestic Production (GDP), inflation, interest rate, and money supply have been modeled as
explanatory control variables with different Auto Regressive (AR) lags
The study has identified that
the CSE market shows significant asymmetric information distribution behavior with negative volatility
leverage. The inflation and money supply have significant influence on CSE volatility, however, GDP
has little explanatory power. Furthermore, it was found that CSE price volatility has taken few weeks
for responding to the macroeconomic variability based on lag interval results.
