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Modelling and forecasting the volatility of the portuguese stock index PSI-20

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  • Caiado, Jorge

Abstract

The volatility clustering often seen in financial data has increased the interest of researchers in applying good models to measure and forecast stock returns. This paper aims to model the volatility for daily and weekly returns of the Portuguese Stock Index PSI-20. By using simple GARCH, GARCH-M, Exponential GARCH (EGARCH) and Threshold ARCH (TARCH) models, we find support that there are significant asymmetric shocks to volatility in the daily stock returns, but not in the weekly stock returns. We also find that some weekly returns time series properties are substantially different from properties of daily returns, and the persistence in conditional volatility is different for some of the sub-periods referred. Finally, we compare the forecasting performance of the various volatility models in the sample periods before and after the terrorist attack on September 11, 2001.

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  • Caiado, Jorge, 2004. "Modelling and forecasting the volatility of the portuguese stock index PSI-20," MPRA Paper 2077, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2077
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    Cited by:

    1. Sergey SVESHNIKOV & Victor BOCHARNIKOV, 2009. "Eforecasting Financial Indexes With Model Of Composite Events Influence," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(3(9)_Fall).
    2. Amir Rafique, 2011. "Comparing the Leverage Effect of Different Frequencies of Stock Returns in an Emerging Market: A Case Study of Pakistan," Information Management and Business Review, AMH International, vol. 3(6), pages 283-288.
    3. Amir Rafique, 2011. "Comparing the Volatility Clustering Of Different Frequencies of Stock Returns in an Emerging Market: A Case Study of Pakistan," Journal of Economics and Behavioral Studies, AMH International, vol. 3(6), pages 332-336.
    4. Yaya, OlaOluwa S. & Gil-Alana, Luis A., 2014. "The persistence and asymmetric volatility in the Nigerian stock bull and bear markets," Economic Modelling, Elsevier, vol. 38(C), pages 463-469.
    5. Ioannis A. Tampakoudis & Demetres N. Subeniotis & Ioannis G. Kroustalis, 2012. "Modelling volatility during the current financial crisis: an empirical analysis of the US and the UK stock markets," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 5(3/4), pages 171-194.

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    More about this item

    Keywords

    EGARCH; forecasting; GARCH; GARCH-M; leverage effect; PSI-20 index; TARCH; volatility;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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