Tuning for Precision Forecasting of Green Market Volatility Time Series

In recent years, the green financial market has been exhibiting heightened volatility daily, largely due to policy changes and economic shifts. To explore the broader potential of predictive modeling in the context of short-term volatility time series, this study analyzes how fine-tuning hyperparameters in predictive models is essential for improving short-term forecasts of market volatility, particularly within the rapidly evolving domain of green financial markets. While traditional econometric models have long been employed to model market volatility, their application to green markets remains limited, especially when contrasted with the emerging potential of machine-learning and deep-learning approaches for capturing complex dynamics in this context. This study evaluates the performance of several data-driven forecasting models starting with machine-learning models: regression tree (RT) and support vector regression (SVR), and with deep-learning ones: long short-term memory (LSTM), convolutional neural network (CNN), and gated recurrent unit (GRU) applied to over a decade of daily estimated volatility data coming from three distinct green markets. Predictive accuracy is compared both with and without hyperparameter optimization methods. In addition, this study introduces the quantile loss metric to better capture the skewness and heavy tails inherent in these financial series, alongside two widely used evaluation metrics. This comparative analysis yields significant numerical and graphical insights, enhancing the understanding of short-term volatility predictability in green markets and advancing a relatively underexplored research domain. The study demonstrates that deep-learning predictors outperform machine-learning ones, and that including a hyperparameter tuning algorithm shows consistent improvements across all deep-learning models and for all volatility time series.