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Determinants of Short-term Volatility at the Warsaw Stock Exchange: In-sample vs. Out-of-sample Forecasts from Factor and Predictive GARCH Models

Author

Listed:
  • Janusz Brzeszczynski
  • Aleksander Welfe

Abstract

The paper presents factor and predictive GARCH(1,1) models of the Warsaw Stock Exchange (WSE) main index WIG. An approach where the mean equation of the GARCH model includes a deterministic part is applied. The models incorporate such explanatory variables as volume of trade and major international stock market indices. The paper exploits the direction quality measures that can be used as alternative measures to evaluate model goodness of fit. Finally, the in-sample versus the out-of-sample forecasts from the estimated models are compared and model forecasting performance is discussed.

Suggested Citation

  • Janusz Brzeszczynski & Aleksander Welfe, 2004. "Determinants of Short-term Volatility at the Warsaw Stock Exchange: In-sample vs. Out-of-sample Forecasts from Factor and Predictive GARCH Models," CERT Discussion Papers 0408, Centre for Economic Reform and Transformation, Heriot Watt University.
    • Handle: RePEc:hwe:certdp:0408
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    More about this item

    Keywords

    stock market; factor GARCH; predictive GARCH; in-sample vs. out-of sample forecasts; direction quality measures; emerging markets;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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