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Applicability of the EWMA model to estimate the volatility of Istanbul stock exchange bonds and bills market

Author

Listed:
  • Riza ASIKOGLU
  • Canturk KAYAHAN

    (Afyon Kocatepe University, Turkey)

Abstract

Calculations based on Volatility Forecasting Models are the leading research topics in today’s financial markets. Numerous volatility models exist to predict the future in financial markets, ranging from historical and forecasting models to conditional variance distributions. However, a consensus regarding which model presents the highest predictive power has not been reached. This study attempts to explore whether the EWMA model provides sufficient forecasting power towards predicting the volatilities of interest rates of the Government Debt Securities (GDS) traded in the Bonds and Bills Market. The daily volatilities of GDS with maturities of six and twelve months have been predicted by the EWMA Model at different coefficients of lambda. The significantly high reliability level of 0.99 attained by back testing of the calculated volatility forecasts supports the usability of EWMA model in determination of volatility estimates with respect to interest rates

Suggested Citation

  • Riza ASIKOGLU & Canturk KAYAHAN, 2010. "Applicability of the EWMA model to estimate the volatility of Istanbul stock exchange bonds and bills market," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(11), pages 108-121, May.
    • Handle: RePEc:aio:fpvfcf:v:1:y:2010:i:11:p:108-121
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    Keywords

    EWMA; volatility; interest;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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