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Forecast Evaluation of Explanatory Models of Financial Variability

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  • Sucarrat, Genaro

Abstract

A practice that has become widespread and widely endorsed is that of evaluating forecasts of financial variability obtained from discrete time models by comparing them with high-frequency ex post estimates (e.g. realised volatility) based on continuous time theory. In explanatory financial variability modelling this raises several methodological and practical issues, which suggests an alternative approach is needed. The contribution of this study is twofold. First, the finite sample properties of operational and practical procedures for the forecast evaluation of explanatory discrete time models of financial variability are studied. Second, based on the simulation results a simple but general framework is proposed and illustrated. The illustration provides an example of where an explanatory model outperforms realised volatility ex post. --

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File URL: http://dx.doi.org/10.5018/economics-ejournal.ja.2009-8
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Bibliographic Info

Article provided by Kiel Institute for the World Economy in its journal Economics: The Open-Access, Open-Assessment E-Journal.

Volume (Year): 3 (2009)
Issue (Month): 8 ()
Pages: 1-33

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Handle: RePEc:zbw:ifweej:7594

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Related research

Keywords: Financial variability; financial volatility; forecasting; explanatory modelling; exchange rates;

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References

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Citations

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Cited by:
  1. Genaro Sucarrat & Alvaro Escribano, 2009. "Automated financial multi-path GETS modelling," Economics Working Papers we093620, Universidad Carlos III, Departamento de Economía.
  2. BAUWENS, Luc & SUCARRAT, Genaro, . "General-to-specific modelling of exchange rate volatility: a forecast evaluation," CORE Discussion Papers RP -2234, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Alvaro Escribano & Genaro Sucarrat, 2011. "Automated model selection in finance: General-to-speci c modelling of the mean and volatility speci cations," Working Papers 2011-09, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.

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