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Quantile-based GARCH-MIDAS: Estimating value-at-risk using mixed-frequency information

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  • Xu, Yan
  • Wang, Xinyu
  • Liu, Hening

Abstract

Utilizing mixed-frequency data to predict value-at-risk of portfolio returns is promising. Inspired by the GARCH-MIDAS model (Engle et al., 2013), we propose a novel quantile-based GARCH-MIDAS model to explain how low-frequency covariates affect the quantile of high-frequency variables, being also an extension of CAViaR (Engle and Manganelli, 2004). We examine the impact of monthly economic policy uncertainty on the daily value-at-risk in the West Texas Intermediate crude oil spot and futures markets from 2000 to 2019 and find that the rise in economic policy uncertainty does drive greater WTI crude oil market risk, and vice versa.

Suggested Citation

  • Xu, Yan & Wang, Xinyu & Liu, Hening, 2021. "Quantile-based GARCH-MIDAS: Estimating value-at-risk using mixed-frequency information," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000465
    DOI: 10.1016/j.frl.2021.101965
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    1. Wangfang Xu & Wenjia Rao & Longbao Wei & Qianqian Wang, 2023. "A Normalized Global Economic Policy Uncertainty Index from Unsupervised Machine Learning," Mathematics, MDPI, vol. 11(15), pages 1-10, July.
    2. Naimoli, Antonio, 2022. "The information content of sentiment indices for forecasting Value at Risk and Expected Shortfall in equity markets," MPRA Paper 112588, University Library of Munich, Germany.
    3. Pourkhanali, Armin & Tafakori, Laleh & Bee, Marco, 2023. "Forecasting Value-at-Risk using functional volatility incorporating an exogenous effect," International Review of Financial Analysis, Elsevier, vol. 89(C).
    4. Zhang, Lixia & Bai, Jiancheng & Zhang, Yueyan & Cui, Can, 2023. "Global economic uncertainty and the Chinese stock market: Assessing the impacts of global indicators," Research in International Business and Finance, Elsevier, vol. 65(C).
    5. Sara Boni & Massimiliano Caporin & Francesco Ravazzolo, 2024. "Nowcasting Inflation at Quantiles: Causality from Commodities," BEMPS - Bozen Economics & Management Paper Series BEMPS102, Faculty of Economics and Management at the Free University of Bozen.

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