Linear time-varying regression with a DCC-GARCH model for volatility

Jong Min Kim, Hojin Jung, Li Qin

    Research output: Contribution to journalArticlepeer-review

    4 Scopus citations

    Abstract

    This article provides a new linear state space model with time-varying parameters for forecasting financial volatility. The volatility estimates obtained from the model by using the US stock market data almost exactly match the realized volatility. We further compare our model with traditional volatility models in the ex post volatility forecast evaluations. In particular, we use the superior predictive ability and the reality check for data snooping. Evidence can be found supporting that our simple but powerful regression model provides superior forecasts for volatility.

    Original languageEnglish (US)
    Pages (from-to)1573-1582
    Number of pages10
    JournalApplied Economics
    Volume48
    Issue number17
    DOIs
    StatePublished - Apr 8 2016

    Keywords

    • DCC-GARCH
    • Volatility
    • forecasting
    • time-varying parameter

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