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Predictive Ability of Asymmetric Volatility Models at Medium-Term Horizons

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  • Turgut Kisinbay

Abstract

Using realized volatility to estimate conditional variance of financial returns, we compare forecasts of volatility from linear GARCH models with asymmetric ones. We consider horizons extending to 30 days. Forecasts are compared using three different evaluation tests. With data from an equity index and two foreign exchange returns, we show that asymmetric models provide statistically significant forecast improvements upon the GARCH model for two of the datasets and improve forecasts for all datasets by means of forecasts combinations. These results extend to about 10 days in the future, beyond which the forecasts are statistically inseparable from each other.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/131.

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Length: 38
Date of creation: 01 Jun 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/131

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Keywords: Forecasting models;

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References

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  1. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  2. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 254-59, April.
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  4. Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 1-42.
  5. Ole E. Barndorff-Nielsen & Bent Nielsen & Neil Shephard & Carla Ysusi, 2002. "Measuring and forecasting financial variability using realised variance with and without a model," Economics Papers 2002-W21, Economics Group, Nuffield College, University of Oxford.
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  7. Dacorogna, Michael M. & Muller, Ulrich A. & Nagler, Robert J. & Olsen, Richard B. & Pictet, Olivier V., 1993. "A geographical model for the daily and weekly seasonal volatility in the foreign exchange market," Journal of International Money and Finance, Elsevier, vol. 12(4), pages 413-438, August.
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  15. Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
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Cited by:
  1. Bednarik, Radek, 2008. "Analýza volatility devizových kurzů vybraných ekonomik
    [The Analysis of Volatility of Selected Countries' Exchange Rates]
    ," MPRA Paper 15046, University Library of Munich, Germany.
  2. Antonakakis, Nikolaos & Darby, Julia, 2012. "Forecasting Volatility in Developing Countries' Nominal Exchange Returns," MPRA Paper 40875, University Library of Munich, Germany.

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