A new approach to bad news effects on volatility: the multiple-sign-volume sensitive regime EGARCH model (MSV-EGARCH) |
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| Authors: | José Dias Curto João Amaral Tomaz José Castro Pinto |
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| Institution: | (1) ISCTE Business School, Lisboa, Portugal;(2) School of Bank Management (ISGB) and Portuguese Securities Market Commission (CMVM), Lisboa, Portugal |
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| Abstract: | In this paper, using daily data for six major international stock market indexes and a modified EGARCH specification, the
links between stock market returns, volatility and trading volume are investigated in a new nonlinear conditional variance
framework with multiple regimes and volume effects. Volatility forecast comparisons, using the Harvey-Newbold test for multiple
forecasts encompassing, seem to demonstrate that the MSV-EGARCH complex threshold structure is able to correctly fit GARCH-type
dynamics of the series under study and dominates competing standard asymmetric models in several of the considered stock indexes.
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| Keywords: | Conditional heteroskedasticity Multiple regimes Trading volume Estimation Forecasting |
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