Modeling and forecasting firm-specific volatility: The role of asymmetry and long-memory

Francisco González-Pla and Lidija Lovreta

Finance Research Letters, 2022, vol. 48, issue C

Abstract: We analyze the relevance of asymmetry and long-memory in modeling and forecasting firm-specific volatility. The asymmetric effect and the degree of long-memory seem to be more pronounced for equity than for firm's asset volatility. However, once the asymmetry is allowed in the model along with long-memory, firm's asset volatility is more persistent than equity volatility for high leverage firms. A horse race among different GARCH-type models (GARCH, EGARCH, IGARCH, FIGARCH, HYGARCH, FIEGARCH, and FIAPARCH) shows that more sophisticated (FIEGARCH and FIAPARCH) models outperform other specifications in out-of-sample firm-level volatility forecasting. The simplest GARCH and IGARCH models show the worst performance.

Keywords: Firm-level volatility; Forecasting; GARCH models; Long-memory; Asymmetry (search for similar items in EconPapers)
JEL-codes: C22 C52 C53 G12 (search for similar items in EconPapers)
Date: 2022
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:eee:finlet:v:48:y:2022:i:c:s1544612322001933

DOI: 10.1016/j.frl.2022.102931

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