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VS-LTGARCHX: A Flexible Subset Selection Approach for Estimation of log-TGARCHX Models and Its Application to BTC Markets

Author

Listed:
  • Victor Elvira

    (Edin. - University of Edinburgh)

  • Samir Orujov

    (UBS - Université de Bretagne Sud, LMBA - Laboratoire de Mathématiques de Bretagne Atlantique - UBS - Université de Bretagne Sud - UBO - Université de Brest - CNRS - Centre National de la Recherche Scientifique)

  • Audrey Poterie

    (UBS - Université de Bretagne Sud, LMBA - Laboratoire de Mathématiques de Bretagne Atlantique - UBS - Université de Bretagne Sud - UBO - Université de Brest - CNRS - Centre National de la Recherche Scientifique)

  • Farid Rajabov

    (UCL - University College of London [London])

  • Francois Septier

    (UBS - Université de Bretagne Sud, LMBA - Laboratoire de Mathématiques de Bretagne Atlantique - UBS - Université de Bretagne Sud - UBO - Université de Brest - CNRS - Centre National de la Recherche Scientifique)

Abstract

The log-TGARCHX model is less restrictive in terms of inclusion of exogenous variables and asymmetry lags compared to the GARCHX model. However, adding less (more) covariates than necessary may lead to underfitting (overfitting), respectively. In this context, we propose a new algorithm, called VS-LTGARCHX, which incorporates a variable selection procedure into the log-TGARCHX estimation process. Furthermore, the VS-LTGARCHX algorithm is applied to extremely volatile BTC markets using 42 conditioning variables. Interestingly, our results show that the VS-LTGARCHX models outperform the specified benchmark models in one-step-ahead forecasting.

Suggested Citation

  • Victor Elvira & Samir Orujov & Audrey Poterie & Farid Rajabov & Francois Septier, 2023. "VS-LTGARCHX: A Flexible Subset Selection Approach for Estimation of log-TGARCHX Models and Its Application to BTC Markets," Working Papers hal-04283159, HAL.
    • Handle: RePEc:hal:wpaper:hal-04283159
    Note: View the original document on HAL open archive server: https://hal.science/hal-04283159v2
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