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Precondition stock and stock indices volatility modeling based on market diversification potential: Evidence from Russian market

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  • Nagapetyan, Artur

    (Far Eastern Federal University, Vladivostok, Russian Federation)

Abstract

The approaches to modeling stocks volatility, stock indices volatility and financial portfolios volatility which differ from the existing ones by taking into account the dynamics of the Market Diversification Potential Index, are proposed. The presence of a significant effect of the Market Diversification Potential Index on the volatility of stocks, stock indices, and financial portfolios was demonstrated. A model has been developed for predicting the volatility of returns on stocks, stock indices, and financial portfolios, which takes into account the impact of the dynamics of the Market Diversification Potential Index and allows us to significantly increase the forecast qualities of existing models. The results of using a non-sampling forecasting technique for one period when working with financial assets demonstrated realized stock and stock index volatility, simulating realized volatility of random financial portfolios and modeling Markowitz effective financial portfolios.

Suggested Citation

  • Nagapetyan, Artur, 2019. "Precondition stock and stock indices volatility modeling based on market diversification potential: Evidence from Russian market," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 56, pages 45-61.
  • Handle: RePEc:ris:apltrx:0380
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    Cited by:

    1. Vladimir Pyrlik & Pavel Elizarov & Aleksandra Leonova, 2021. "Forecasting Realized Volatility Using Machine Learning and Mixed-Frequency Data (the Case of the Russian Stock Market)," CERGE-EI Working Papers wp713, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    Keywords

    volatility clustering; realized correlation; DCC; MEWMA; MGARCH; market diversification potential index; MCS; correlation simulation; realized volatility; effective portfolio; out-of-sample forecasting.;
    All these keywords.

    JEL classification:

    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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