Precondition stock and stock indices volatility modeling based on market diversification potential: Evidence from Russian market

Artur Nagapetyan

Applied Econometrics, 2019, vol. 56, 45-61

Abstract: The approaches to modeling stocks volatility, stock indices volatility and financial portfolios volatility which differ from the existing ones by taking into account the dynamics of the Market Diversification Potential Index, are proposed. The presence of a significant effect of the Market Diversification Potential Index on the volatility of stocks, stock indices, and financial portfolios was demonstrated. A model has been developed for predicting the volatility of returns on stocks, stock indices, and financial portfolios, which takes into account the impact of the dynamics of the Market Diversification Potential Index and allows us to significantly increase the forecast qualities of existing models. The results of using a non-sampling forecasting technique for one period when working with financial assets demonstrated realized stock and stock index volatility, simulating realized volatility of random financial portfolios and modeling Markowitz effective financial portfolios.

Keywords: volatility clustering; realized correlation; DCC; MEWMA; MGARCH; market diversification potential index; MCS; correlation simulation; realized volatility; effective portfolio; out-of-sample forecasting. (search for similar items in EconPapers)
JEL-codes: G17 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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