FORECASTING WITH GARCH MODELS UNDER STRUCTURAL BREAKS: AN APPROACH BASED ON COMBINATIONS ACROSS ESTIMATION WINDOWS

Davide De Gaetano ()

No 219, Departmental Working Papers of Economics - University 'Roma Tre' from Department of Economics - University Roma Tre

Abstract: This paper proposes some weighting schemes to average forecasts across different estimation windows to account for structural changes in the unconditional variance of a GARCH (1,1) model. Each combination is obtained by averaging forecasts generated by recursively increasing an initial estimation window of a fixed number of observations v. Three different choices of the combination weights are proposed. In the first scheme, the forecast combination is obtained by using equal weights to average the individual forecasts; the second weighting method assigns heavier weights to forecasts that use more recent information; the third is a trimmed version of the forecast combination with equal weights where a fixed fraction of forecasts with the worst performance are discarded. Simulation results show that forecast combinations with high values of v are able to perform better than alternative schemes proposed in the literature. An application to real data confirms the simulation results

Keywords: Forecast combinations; Structural breaks; GARCH models. (search for similar items in EconPapers)
JEL-codes: C53 C58 G17 (search for similar items in EconPapers)
Date: 2017-05
New Economics Papers: this item is included in nep-dcm, nep-ecm, nep-ets and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:rtr:wpaper:0219

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