A Comparison of Conditional Volatility Estimators for the ISE National 100 Index Returns
We compare more than 1000 different volatility models in terms of their fit to the historical ISE-100 Index data and their forecasting performance of the conditional variance in an out-of-sample setting. Exponential GARCH model of Nelson (1991) with “constant mean, t-distribution, one lag moving average term” specification achieves the best overall performance for modeling the ISE-100 return volatility. The t-distribution seems to characterize the distribution of the heavy tailed returns better than the Gaussian distribution or the generalized error distribution. In terms of forecasting performance, the best models are the ones that can accommodate a leverage effect. Results from fitting the selected exponential GARCH model to the historical ISE-100 return data indicates that the return volatility reacts to bad news 24% more than they react to good news as a result of a one standard deviation shock to the returns. As the magnitude of shock increases, the asymmetry becomes larger.
|Date of creation:||2009|
|Date of revision:|
|Publication status:||Published in Journal of Economic and Social Research 11.2(2009): pp. 1-29|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
- Ser-Huang Poon & Clive W.J. Granger, 2003. "Forecasting Volatility in Financial Markets: A Review," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 478-539, June.
- Higgins, Matthew L & Bera, Anil K, 1992. "A Class of Nonlinear ARCH Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(1), pages 137-58, February.
- G. William Schwert, 1990.
"Why Does Stock Market Volatility Change Over Time?,"
NBER Working Papers
2798, National Bureau of Economic Research, Inc.
- Schwert, G William, 1989. " Why Does Stock Market Volatility Change over Time?," Journal of Finance, American Finance Association, vol. 44(5), pages 1115-53, December.
- Asger Lunde & Peter Reinhard Hansen, 2001.
"A Forecast Comparison of Volatility Models: Does Anything Beat a GARCH(1,1)?,"
2001-04, Brown University, Department of Economics.
- Asger Lunde & Peter R. Hansen, 2005. "A forecast comparison of volatility models: does anything beat a GARCH(1,1)?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 873-889.
- Glosten, Lawrence R & Jagannathan, Ravi & Runkle, David E, 1993.
" On the Relation between the Expected Value and the Volatility of the Nominal Excess Return on Stocks,"
Journal of Finance,
American Finance Association, vol. 48(5), pages 1779-1801, December.
- Lawrence R. Glosten & Ravi Jagannathan & David E. Runkle, 1993. "On the relation between the expected value and the volatility of the nominal excess return on stocks," Staff Report 157, Federal Reserve Bank of Minneapolis.
- Hansen, Peter Reinhard, 2005. "A Test for Superior Predictive Ability," Journal of Business & Economic Statistics, American Statistical Association, vol. 23, pages 365-380, October.
- Turhan, Ibrahim M., 2008. "Why did it work this time: a comparative analysis of transformation of Turkish economy after 2002," MPRA Paper 31158, University Library of Munich, Germany.
- Nelson, Daniel B., 1990. "Stationarity and Persistence in the GARCH(1,1) Model," Econometric Theory, Cambridge University Press, vol. 6(03), pages 318-334, September.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Engle, Robert F & Lilien, David M & Robins, Russell P, 1987. "Estimating Time Varying Risk Premia in the Term Structure: The Arch-M Model," Econometrica, Econometric Society, vol. 55(2), pages 391-407, March.
- Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
- Tim Bollerslev, 2008. "Glossary to ARCH (GARCH)," CREATES Research Papers 2008-49, School of Economics and Management, University of Aarhus.
- Fatih Ozatay & Guven Sak, 2003. "Banking Sector Fragility and Turkey’s 2000–01 Financial Crisis," Working Papers 0308, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Engle, Robert F, 1990. "Stock Volatility and the Crash of '87: Discussion," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 103-06.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:30510. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.