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Forecasting the return volatility of European equity markets under different market conditions:A GARCH-MIDAS approach

Author

Listed:
  • Afees A. Salisu

    (Centre for Econometric and Allied Research, University of Ibadan)

  • Umar B. Ndako

    (Monetary Policy Department, Central Bank of Nigeria, Nigeria.)

Abstract

In this paper, we employ the GARCH-MIDAS modelling framework to forecast the return volatility of the European equity markets on the basis of the predictive powers of such macroeconomic information as realised volatility, the level of economic activities and macroeconomic uncertainty. We distinctly evaluate the behaviour of the return volatilities under different market conditions designated as „Pre Euro Regime,‟ „Euro /Pre-GFC Regime,‟ and „Euro/Post-GFC Regime‟. Our findings show that the macroeconomic information considered in the model are good predictors of the return volatility of the European equity markets. Also, the in-sample and out-of-sample forecast results of these predictors are sensitive to data sample and the market conditions.

Suggested Citation

  • Afees A. Salisu & Umar B. Ndako, 2017. "Forecasting the return volatility of European equity markets under different market conditions:A GARCH-MIDAS approach," Working Papers 028, Centre for Econometric and Allied Research, University of Ibadan.
    • Handle: RePEc:cui:wpaper:0028
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    Keywords

    FIFA; World cup; Second round qualification; Binary Choice Model (BCM);
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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