Forecasting volatility in Asian financial markets: evidence from recursive and rolling window methods

Sahiner, M ORCID: https://orcid.org/0000-0002-7455-8694, 2022. Forecasting volatility in Asian financial markets: evidence from recursive and rolling window methods. SN Business and Economics, 2 (10): 157. ISSN 2662-9399

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Abstract

The present paper examines the relative out-of-sample predictive ability of GARCH, GARCH-M, EGARCH, TGARCH and PGARCH models for ten Asian markets by using three different time frames and two different methods, considering the features of volatility clustering, leverage effect and volatility persistence phenomena, for which the evidence of existence is found in the data. Five measures of comparison are employed in this research, and a further dimension is investigated based on the classification of the selected models, in order to identify the existence or lack of any differences between the recursive and rolling window methods. The empirical results reveal that asymmetric models, led by the EGARCH model, provide better forecasts compared to symmetric models in higher time frames. However, when it comes to lower time frames, symmetric GARCH models tend to outperform their asymmetric counterparts. Furthermore, linear GARCH models are penalized more by the rolling window method, while recursive method places them amongst the best performers, highlighting the importance of choosing a proper approach. In addition, this study reveals an important controversy: that one error statistic may suggest a particular model is the best, while another suggests the same model to be the worst, indicating that the performance of the model heavily depends on which loss function is used. Finally, it is proved that GARCH-type models can appropriately adapt to the volatility of Asian stock indices and provide a satisfactory degree of forecast accuracy in all selected time frames. These results are also supported by the Diebold-Mariano (DM) pairwise comparison test.

Item Type:	Journal article
Publication Title:	SN Business and Economics
Creators:	Sahiner, M.
Publisher:	Springer
Date:	29 September 2022
Volume:	2
Number:	10
ISSN:	2662-9399
Identifiers:	Number Type 10.1007/s43546-022-00329-9 DOI 1756502 Other
Rights:	© the author(s) 2022. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	02 May 2023 16:08
Last Modified:	02 May 2023 16:08
URI:	https://irep.ntu.ac.uk/id/eprint/48866

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