Predictive Ability of Asymmetric Volatility Models At Medium-Term Horizons

Download or read book Predictive Ability of Asymmetric Volatility Models At Medium-Term Horizons written by Turgut Kisinbay and published by International Monetary Fund. This book was released on 2003-06-01 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.