Modeling the Volatility and Forecasting the Stock Price of the German Stock Index (DAX30)

Tristan Nguyen and Thi Thanh Mai Bui
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Thi Thanh Mai Bui: Berlin School of Economics and Law, Berlin, Germany

International Journal of Economics and Financial Research, 2018, vol. 4, issue 4, 72-92

Abstract: To analyze the factors affecting the price volatility of stocks, microeconomic and macroeco-nomic elements must be considered. This paper selects elements that are appropriate with the daily data of stock prices to build the GARCH family models. External variables such as global oil prices, consumer price index, short interest rates and the exchange rate between the United States Dollar and the Euro are examined. The GARCH models are developed in order to analyze and forecast the stock price of the companies in the DAX 30, which is Germany’s most important stock exchange barometer. The volatility of the residual of the mean function is the important key point in the GARCH approach. This financial application can be extend-ed to analyze other specific shares or stock indexes in any stock market in the world. There-fore, it is necessary to understand the operating procedures of their pricing for risk manage-ment, profitability strategies, cost minimization and, in addition, to construct the optimal port-folio depending on investor’s preferences.

Keywords: Heteroscedasticity; GARCH models; Volatility; Portfolio optimization; German stock index. (search for similar items in EconPapers)
Date: 2018
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