Model Selection and Testing of Conditional and Stochastic Volatility Models
AbstractThis paper focuses on the selection and comparison of alternative non-nested volatility models. We review the traditional in-sample methods commonly applied in the volatility framework, namely diagnostic checking procedures, information criteria, and conditions for the existence of moments and asymptotic theory, as well as the out-of-sample model selection approaches, such as mean squared error and Model Confidence Set approaches. The paper develops some innovative loss functions which are based on Value-at-Risk forecasts. Finally, we present an empirical application based on simple univariate volatility models, namely GARCH, GJR, EGARCH, and Stochastic Volatility that are widely used to capture asymmetry and leverage.
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Bibliographic InfoPaper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 724.
Date of creation: Sep 2010
Date of revision:
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Postal: Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501
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More information through EDIRC
Volatility model selection; volatility model comparison; non-nested models; model confidence set; Value-at-Risk forecasts; asymmetry; leverage;
Other versions of this item:
- Massimiliano Caporin & Michael McAleer, 2010. "Model Selection and Testing of Conditional and Stochastic Volatility Models," Working Papers in Economics 10/58, University of Canterbury, Department of Economics and Finance.
- Caporin, M. & McAleer, M.J., 2010. "Model Selection and Testing of Conditional and Stochastic Volatility Models," Econometric Institute Report EI 2010-57, Erasmus University Rotterdam, Econometric Institute.
- C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-ETS-2010-10-02 (Econometric Time Series)
- NEP-FOR-2010-10-02 (Forecasting)
- NEP-ORE-2010-10-02 (Operations Research)
- NEP-RMG-2010-10-02 (Risk Management)
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