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Forecasting volatility by means of threshold models

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Author Info

  • M. Pilar Mu�oz

    (Department of Statistics and Operations Research, Technical University of Catalonia, Spain)

  • M. Dolores Marquez

    (Department of Business Economics, Autonomous University of Barcelona, Spain)

  • Lesly M. Acosta

    (Department of Statistics and Operations Research, Technical University of Catalonia, Spain)

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    Abstract

    The aim of this paper is to compare the forecasting performance of competing threshold models, in order to capture the asymmetric effect in the volatility. We focus on examining the relative out-of-sample forecasting ability of the SETAR-Threshold GARCH (SETAR-TGARCH) and the SETAR-Threshold Stochastic Volatility (SETAR-THSV) models compared to the GARCH model and Stochastic Volatility (SV) model. However, the main problem in evaluating the predictive ability of volatility models is that the 'true' underlying volatility process is not observable and thus a proxy must be defined for the unobservable volatility. For the class of nonlinear state space models (SETAR-THSV and SV), a modified version of the SIR algorithm has been used to estimate the unknown parameters. The forecasting performance of competing models has been compared for two return time series: IBEX 35 and S&P 500. We explore whether the increase in the complexity of the model implies that its forecasting ability improves. Copyright © 2007 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/for.1031
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    Bibliographic Info

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

    Volume (Year): 26 (2007)
    Issue (Month): 5 ()
    Pages: 343-363

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    Handle: RePEc:jof:jforec:v:26:y:2007:i:5:p:343-363

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

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    Cited by:
    1. Xiuping Mao & Esther Ruiz & Helena Veiga, 2013. "One for all : nesting asymmetric stochastic volatility models," Statistics and Econometrics Working Papers ws131110, Universidad Carlos III, Departamento de Estadística y Econometría.
    2. Amélie Charles, 2010. "The day-of-the week effects on the volatility: The role of the asymmetry," Post-Print hal-00771136, HAL.

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