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Evaluating and improving GARCH-based volatility forecasts with range-based estimators |
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| Authors: | Jui-Cheng Hung Tien-Wei Lou Yi-Hsien Wang Jun-De Lee |
| Institution: | 1. Department of Banking and Finance , Chinese Culture University , No. 55, Hwa-Kang Rd., Yang-Ming-Shan, Taipei 11114 , Taiwan , ROC hung660804@gmail.com;3. Department of Banking and Finance , Chinese Culture University , No. 55, Hwa-Kang Rd., Yang-Ming-Shan, Taipei 11114 , Taiwan , ROC;4. Department of International Business , Ming Hsin University of Science and Technology , Hsin-Chu , Taiwan |
| Abstract: | This article investigates the feasibility of using range-based estimators to evaluate and improve Generalized Autoregressive Conditional Heteroscedasticity (GARCH)-based volatility forecasts due to their computational simplicity and readily availability. The empirical results show that daily range-based estimators are sound alternatives for true volatility proxies when using Superior Predictive Ability (SPA) test of Hansen (2005) to assess GARCH-based volatility forecasts. In addition, the inclusion of the range-based estimator of Garman and Klass (1980) can significantly improve the forecasting performance of GARCH-t model. |
| Keywords: | range-based estimators GARCH-based volatility forecasts SPA test |