Mansour Khalili Araghi - Professor, Faculty of Economics, University of Tehran, Iran,
Majid Mirzaee Ghazani - PhD, Faculty of Economics, University of Tehran, Iran

In this paper, we have examined abrupt changes in volatility of TEPIX index in Tehran stock exchange during August ۲۳, ۲۰۱۰ to June ۱۲, ۲۰۱۴. Applying the iterated cumulative sum of squares (ICSS) algorithm proposed by Inclan and Tiao (۱۹۹۴) and the modified version of this algorithm consisting Kappa ۱ and Kappa ۲ test statistics developed by Sansó et al. (۲۰۰۴), we have specified that the detection of abrupt changes are mainly explained by local economic and political factors and probably they are behind those changes. This finding is in line with that of Aggarwal et al. (۱۹۹۹) who discovered that country-specific factors play a key role in determining those sudden shifts in financial markets. In addition, the results of this study ratify the findings of the previous ones suggesting that, when the abrupt changes are embedded into standard GARCH models, the estimated persistence of volatility is decreased significantly.

stock return volatility, volatility persistence, ICSS algorithm, GARCH Models