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A Real-Time GARCH-MIDAS model

Author

Listed:
  • Wu, Xinyu
  • Zhao, An
  • Cheng, Tengfei

Abstract

This paper proposes the Real-Time GARCH-MIDAS model to model and forecast volatility. An empirical application to the Shanghai Stock Exchange Composite Index (SSEC) and Shenzhen Stock Exchange Component Index (SZSEC) of China shows that the Real-Time GARCH-MIDAS model outperforms competing models in terms of both empirical return fitting and out-of-sample volatility forecasting. Moreover, the superior forecasting performance of the Real-Time GARCH-MIDAS model is robust to alternative rolling windows, alternative benchmark models, alternative MIDAS lags and alternative volatility proxy. Further discussion illustrates the flexibility of the Real-Time GARCH-MIDAS model.

Suggested Citation

  • Wu, Xinyu & Zhao, An & Cheng, Tengfei, 2023. "A Real-Time GARCH-MIDAS model," Finance Research Letters, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:finlet:v:56:y:2023:i:c:s1544612323004750
    DOI: 10.1016/j.frl.2023.104103
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    More about this item

    Keywords

    Real-Time GARCH-MIDAS; Persistence; Current return information; Volatility of volatility; Volatility forecasting;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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