One-factor-Garch models for German stocks: Estimation and forecasting

Thomas Kaiser

No 87, Tübinger Diskussionsbeiträge from University of Tübingen, School of Business and Economics

Abstract: This paper presents theoretical models and their empirical results for the return and variance dynamics of German stocks. A factor structure is used in order to allow for a parsimonious modeling of the first two moments of returns. Dynamic factor models with GARCH dynamics (GARCH(1,1)-M, IGARCH(1,1)-M, Nonlinear Asymmetrie GARCH(1,1)-M and Glosten-Jagannathan-Runkle GARCH(1,1)-M) and three different distributions for the disturbances (Normal, Student's t and Generalized Error Distribution) are considered, Out-of-sample forecasts for the stock returns based upon these models are computed. These forecasts are compared with forecasts based on individual GARCH(1,1)-M models, static factor models, naive, random walk and exponential smoothing forecasts.

Keywords: Dynamic Factors; GARCH; Asset Pricing; Forecasting (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Date: 1996
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:tuedps:87

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