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The importance of being informed: forecasting market risk measures for the Russian RTS index future using online data and implied volatility over two decades

Author

Listed:
  • Fantazzini, Dean

    () (Moscow School of Economics, Moscow State University; Russia)

  • Shangina, Tamara

    () (ICEF, National Research University Higher School of Economics, Moscow, Russian Federation)

Abstract

This paper focuses on the forecasting of market risk measures for the Russian RTS index future, and examines whether augmenting a large class of volatility models with implied volatility and Google Trends data improves the quality of the estimated risk measures. We considered a time sample of daily data from 2006 till 2019, which includes several episodes of large-scale turbulence in the Russian future market. We found that the predictive power of several models did not increase if these two variables were added, but actually decreased. The worst results were obtained when these two variables were added jointly and during periods of high volatility, when parameters estimates became very unstable. Moreover, several models augmented with these variables did not reach numerical convergence. Our empirical evidence shows that, in the case of Russian future markets, TGARCH models with implied volatility and Student’s t errors are better choices if robust market risk measures are of concern.

Suggested Citation

  • Fantazzini, Dean & Shangina, Tamara, 2019. "The importance of being informed: forecasting market risk measures for the Russian RTS index future using online data and implied volatility over two decades," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 55, pages 5-31.
  • Handle: RePEc:ris:apltrx:0372
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    Keywords

    forecasting; Value-at-Risk; realized volatility; Google trends; implied volatility; GARCH; ARFIMA; HAR; realized-GARCH;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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