Predictive Ability of Asymmetric Volatility Models At Medium-Term Horizons

Author/Editor:

Turgut Kisinbay

Publication Date:

June 1, 2003

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Using realized volatility to estimate conditional variance of financial returns, we compare forecasts of volatility from linear GARCH models with asymmetric ones. We consider horizons extending to 30 days. Forecasts are compared using three different evaluation tests. With data from an equity index and two foreign exchange returns, we show that asymmetric models provide statistically significant forecast improvements upon the GARCH model for two of the datasets and improve forecasts for all datasets by means of forecasts combinations. These results extend to about 10 days in the future, beyond which the forecasts are statistically inseparable from each other.

Series:

Working Paper No. 2003/131

Subject:

Asset prices Economic forecasting Financial institutions Financial markets Foreign exchange Prices Stock markets Stocks

English

Publication Date:

June 1, 2003

ISBN/ISSN:

9781451855302/1018-5941

Stock No:

WPIEA1312003

Pages:

38

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