Forecasting stock return volatility: A comparison between the roles of short-term and long-term leverage effects

Zhiyuan Pan and Li Liu

Physica A: Statistical Mechanics and its Applications, 2018, vol. 492, issue C, 168-180

Abstract: In this paper, we extend the GARCH-MIDAS model proposed by Engle et al. (2013) to account for the leverage effect in short-term and long-term volatility components. Our in-sample evidence suggests that both short-term and long-term negative returns can cause higher future volatility than positive returns. Out-of-sample results show that the predictive ability of GARCH-MIDAS is significantly improved after taking the leverage effect into account. The leverage effect for short-term volatility component plays more important role than the leverage effect for long-term volatility component in affecting out-of-sample forecasting performance.

Keywords: Volatility; GARCH-MIDAS; Leverage effect; Forecasting (search for similar items in EconPapers)
JEL-codes: C22 C53 C58 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:492:y:2018:i:c:p:168-180

DOI: 10.1016/j.physa.2017.09.030

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