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VS-LTGARCHX: A Flexible Variable Selection in Log-TGARCHX Models

Author

Listed:
  • Orujov Samir

    (Université Bretagne Sud, UMR CNRS 6205, LMBA, F-56000 Vannes, France)

  • Elvira Victor

    (School of Mathematics, University of Edinburgh, Edinburgh EH9 3FD, UK)

  • Poterie Audrey

    (Université Bretagne Sud, UMR CNRS 6205, LMBA, F-56000 Vannes, France)

  • Rajabov Farid

    (Institute of Finance and Technology, University College London, London WC1E 6BT, UK)

  • Septier Francois

    (Université Bretagne Sud, UMR CNRS 6205, LMBA, F-56000 Vannes, France)

Abstract

The log-TGARCHX model is less restrictive in terms of the inclusion of exogenous variables and asymmetry lags compared to the GARCHX model. Nevertheless, adding less (or more) covariates than necessary may lead to under- or overfitting, respectively. In this context, we propose a new algorithm, called VS-LTGARCHX, which incorporates a variable selection procedure into the log-TGARCHX estimation process. Furthermore, the VS-LTGARCHX algorithm is applied to extremely volatile BTC markets using 42 conditioning variables. Interestingly, our results show that the VS-LTGARCHX models outperform benchmark models, namely the log-GARCH(1,1) and log-TGARCHX(1,1) models, in one-step-ahead forecasting.

Suggested Citation

  • Orujov Samir & Elvira Victor & Poterie Audrey & Rajabov Farid & Septier Francois, 2025. "VS-LTGARCHX: A Flexible Variable Selection in Log-TGARCHX Models," Journal of Time Series Econometrics, De Gruyter, vol. 17(1), pages 1-34.
    • Handle: RePEc:bpj:jtsmet:v:17:y:2025:i:1:p:1-34:n:1002
    DOI: 10.1515/jtse-2023-0035
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    More about this item

    Keywords

    GARCH; log-GARCHX; variable selection; Bitcoin volatility;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools

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