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Paper Information

Journal:   FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES)   FALL 2014 , Volume 7 , Number 23; Page(s) 85 To 108.
 
Paper: 

FORECASTING PETROLEUM FUTURES MARKETS VOLATILITY WITH GARCH AND MARKOV REGIME-SWITCHING GARCH MODELS

 
 
Author(s):  BAKY HASKUEE M., KHAJEVAND F.
 
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Abstract: 

In this paper we compare a set of different standard GARCH models with a group of Markov Regime-Switching GARCH (MRS-GARCH) in terms of their ability to forecast the petroleum futures markets volatility at horizons that range from one day to one month. To take into account the excessive persistence usually found in GARCH models that implies too smooth and too high volatility forecasts, MRS-GARCH models, where the parameters are allowed to switch between a low and a high volatility regime, are analyzed. Both gaussian and fat-tailed conditional distributions for the residuals are assumed, and the degrees of freedom can also be state-dependent to capture possible time-varying kurtosis. The forecasting performances of the competing models are evaluated with statistical loss functions. Under statistical losses, we use both tests of equal predictive ability of the Diebold-Mariano-type and test of superior predictive ability, such as White’s Reality Check and Hansen’s SPA test. The empirical analysis demonstrates that MRS-GARCH models do really outperform all standard GARCH models in forecasting volatility at shorter horizons according to a broad set of statistical loss functions. At longer horizons standard asymmetric GARCH models fare the best. All this tests reject the presence of a better model than the MRS-GARCH-t in this research.

 
Keyword(s): MARKOV REGIME-SWITCHING GARCH MODELS, GARCH MODELS, VOLATILITY, FORECASTING, FORECAST EVALUATION, FAT-TAILED DISTRIBUTIONS
 
 
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+ Click to Cite.
APA: Copy

BAKY HASKUEE, M., & KHAJEVAND, F. (2014). FORECASTING PETROLEUM FUTURES MARKETS VOLATILITY WITH GARCH AND MARKOV REGIME-SWITCHING GARCH MODELS. FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), 7(23), 85-108. https://www.sid.ir/en/journal/ViewPaper.aspx?id=408083



Vancouver: Copy

BAKY HASKUEE M., KHAJEVAND F.. FORECASTING PETROLEUM FUTURES MARKETS VOLATILITY WITH GARCH AND MARKOV REGIME-SWITCHING GARCH MODELS. FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES). 2014 [cited 2021May18];7(23):85-108. Available from: https://www.sid.ir/en/journal/ViewPaper.aspx?id=408083



IEEE: Copy

BAKY HASKUEE, M., KHAJEVAND, F., 2014. FORECASTING PETROLEUM FUTURES MARKETS VOLATILITY WITH GARCH AND MARKOV REGIME-SWITCHING GARCH MODELS. FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), [online] 7(23), pp.85-108. Available: https://www.sid.ir/en/journal/ViewPaper.aspx?id=408083.



 
 
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