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

Jong Min Kim, Hojin Jung, Li Qin

Research output: Contribution to journalArticlepeer-review

7 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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