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Reducing Overestimating and Underestimating Volatility via the Augmented Blending-ARCH Model

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  • Jun Lu
  • Shao Yi

Abstract

SVR-GARCH model tends to “backward eavesdrop†when forecasting the financial time series volatility in which case it tends to simply produce the prediction by deviating the previous volatility. Though the SVR-GARCH model has achieved good performance in terms of various performance measurements, trading opportunities, peak or trough behaviors in the time series are all hampered by underestimating or overestimating the volatility. We propose a blending ARCH (BARCH) and an augmented BARCH (aBARCH) model to overcome this kind of problem and make the prediction towards better peak or trough behaviors.The method is illustrated using real data sets including SH300 and S&P500. The empirical results obtained suggest that the augmented and blending models improve the volatility forecasting ability.

Suggested Citation

  • Jun Lu & Shao Yi, 2022. "Reducing Overestimating and Underestimating Volatility via the Augmented Blending-ARCH Model," Applied Economics and Finance, Redfame publishing, vol. 9(2), pages 48-59, May.
    • Handle: RePEc:rfa:aefjnl:v:9:y:2022:i:2:p:48-59
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    References listed on IDEAS

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    Cited by:

    1. Jun Lu & Shao Yi, 2022. "Autoencoding Conditional GAN for Portfolio Allocation Diversification," Applied Economics and Finance, Redfame publishing, vol. 9(3), pages 55-68, August.
    2. Jun Lu & Danny Ding, 2022. "A Hybrid Approach on Conditional GAN for Portfolio Analysis," Papers 2208.07159, arXiv.org.

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