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Multivariate Fractionally Integrated APARCH Modeling of Stock Market Volatility: A multi-country study

  • Christian Conrad

    ()

    (University of Heidelberg, Department of Economics)

  • Menelaos Karanasos

    ()

    (Brunel University, Dept. of Economics and Finance)

  • Ning Zeng

    (Brunel University, Dept. of Economics and Finance)

Tse (1998) proposes a model which combines the fractionally integrated GARCH formulation of Baillie, Bollerslev and Mikkelsen (1996) with the asymmetric power ARCH speci¯cation of Ding, Granger and Engle (1993). This paper analyzes the applicability of a multivariate constant conditional correlation version of the model to national stock market returns for eight countries. We ¯nd this multivariate speci¯cation to be generally applicable once power, leverage and long-memory e®ects are taken into consideration. In addition, we ¯nd that both the optimal fractional di®erencing parameter and power transformation are remarkably similar across countries. Out-of-sample evidence for the superior forecasting ability of the multivariate FIAPARCH framework is provided in terms of forecast error statistics and tests for equal forecast accuracy of the various models.

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Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0472.

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Length: 31 pages
Date of creation: Jul 2008
Date of revision: Jul 2008
Handle: RePEc:awi:wpaper:0472
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