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- Title
Volatility forecasting using stochastic conditional range model with leverage effect.
- Authors
Wu, Xinyu; Xie, Haibin
- Abstract
In this paper, we propose a stochastic conditional range model with leverage effect (henceforth SCRL) for volatility forecasting. A maximum likelihood method based on the particle filters is developed to estimate the parameters of the SCRL model. Simulation results show that the proposed methodology performs well. We apply the proposed model and methodology to four stock market indices, the Shanghai Stock Exchange Composite Index of China, the Hang Seng Index of Hong Kong, the Nikkei 225 Index of Japan, and the S&P 500 Index of US. Empirical results highlight the value of incorporating leverage effect into range modeling and forecasting. In particular, the results show that our SCRL model outperforms the conditional autoregressive range model, the conditional autoregressive range model with leverage effect, and the stochastic conditional range model in both in‐sample fit and out‐of‐sample forecast.
- Subjects
SHANGHAI Stock Exchange Composite Index; NIKKEI 225; HETEROSCEDASTICITY; MAXIMUM likelihood statistics; STANDARD &; Poor's 500 Index; AUTOREGRESSIVE models; STOCK exchanges; STOCK price indexes
- Publication
Applied Stochastic Models in Business & Industry, 2019, Vol 35, Issue 5, p1156
- ISSN
1524-1904
- Publication type
Article
- DOI
10.1002/asmb.2457