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Garch forecasting performance under different distribution assumptions

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Author Info

  • Anders Wilhelmsson

    (Swedish School of Economics and Business Administration, Department of Finance and Statistics, Helsinki, Finland)

Abstract

This paper investigates the forecasting performance of the Garch (1, 1) model when estimated with NINE different error distributions on Standard and Poor's 500 Index Future returns. By utilizing the theory of realized variance to construct an appropriate ex post measure of volatility from intra-day data it is shown that allowing for a leptokurtic error distribution leads to significant improvements in variance forecasts compared to using the normal distribution. This result holds for daily, weekly as well as monthly forecast horizons. It is also found that allowing for skewness and time variation in the higher moments of the distribution does not further improve forecasts.  Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/for.1009
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Forecasting.

Volume (Year): 25 (2006)
Issue (Month): 8 ()
Pages: 561-578

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Handle: RePEc:jof:jforec:v:25:y:2006:i:8:p:561-578

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/2966

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Cited by:
  1. Chen, Haojun & Maher, Daniela, 2013. "On the predictive role of large futures trades for S&P500 index returns: An analysis of COT data as an informative trading signal," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 27(C), pages 177-201.
  2. Dima, Alina Mihaela & Vasilache, Simona & Agoston, Simona & Ghinea, Valentina & Stamule, Tanase, 2011. "Leadership Challenges In Today’s Academia," MPRA Paper 35019, University Library of Munich, Germany.
  3. Chu, Carlin C.F. & Lam, K.P., 2011. "Modeling intraday volatility: A new consideration," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(3), pages 388-418, July.
  4. Shcherba, Alexandr, 2012. "Market risk valuation modeling for the European countries at the financial crisis of 2008," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 27(3), pages 20-35.
  5. Matteo Grigoletto & Francesco Lisi, 2011. "Practical implications of higher moments in risk management," Statistical Methods and Applications, Springer, vol. 20(4), pages 487-506, November.

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