Forecasting the return volatility of European equity markets under different market conditions:A GARCH-MIDAS approach

Afees Salisu and Umar Ndako

No 28, Working Papers from Centre for Econometric and Allied Research, University of Ibadan

Abstract: In this paper, we employ the GARCH-MIDAS modelling framework to forecast the return volatility of the European equity markets on the basis of the predictive powers of such macroeconomic information as realised volatility, the level of economic activities and macroeconomic uncertainty. We distinctly evaluate the behaviour of the return volatilities under different market conditions designated as „Pre Euro Regime,‟ „Euro /Pre-GFC Regime,‟ and „Euro/Post-GFC Regime‟. Our findings show that the macroeconomic information considered in the model are good predictors of the return volatility of the European equity markets. Also, the in-sample and out-of-sample forecast results of these predictors are sensitive to data sample and the market conditions.

Keywords: FIFA; World cup; Second round qualification; Binary Choice Model (BCM) (search for similar items in EconPapers)
JEL-codes: C58 F37 G17 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017-09
New Economics Papers: this item is included in nep-eec and nep-for
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