Due to high and low volatility periods, time series of absolute returns experience temporary level shifts (that is, periods with outliers) which differ in length and size. In this paper we put forward a new model which can describe and forecast the location and size of such level shifts. Our so called Switching Regime Censored Latent Effects Autoregression [SR-CLEAR] assumes that technical trading rules may have explanatory value for future volatility. It is assumed that these rules have a time-varying effect on absolute returns, and that this effect appears as an outlier or a level shift. We apply the SR-CLEAR model to nine stock markets and we document its excellent fit and competitive forecasting ability.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Erasmus University Rotterdam, Econometric Institute in its series Econometric Institute Report with number
EI 2001-34 Revision_Date: 2009-11-06.
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)