Estimating and Predicting Multivariate Volatility Thresholds in Global Stock Markets
Journal
Journal of Applied Econometrics
ISSN
0883-7252
ISSN-Digital
1099-1255
Type
journal article
Date Issued
2006-04-01
Author(s)
Audrino, Francesco
;
Trojani, Fabio
Abstract
We propose a general double tree structured AR-GARCH model for the analysis of global equity index returns. The model extends previous approaches by incorporating (i) several multivariate thresholds in conditional means and volatilities of index returns and (ii) a richer specification for the impact of lagged foreign (US) index returns in each threshold. We evaluate the out-of-sample forecasting power of our model for eight major equity indices in comparison to some existing volatility models in the literature. We find strong evidence for more than one multivariate threshold (more than two regimes) in conditional means and variances of global equity index returns. Such multivariate thresholds are affected by foreign (US) lagged index returns and yield a higher out-of-sample predictive power for our tree structured model setting.
Language
English
HSG Classification
not classified
Refereed
No
Publisher
Wiley-Blackwell
Publisher place
Chichester
Volume
21
Number
3
Start page
345
End page
369
Pages
25
Subject(s)
Division(s)
Eprints ID
12636