- 2002, 04
Forecasting stock market volatility and the informational efficiency of the DAX-index options market
- Alternative strategies for predicting stock market volatility are examined. In out-of-sample forecasting experiments implied-volatility information, derived from contemporaneously observed option prices or history-based volatility predictors, such as GARCH models, are investigated, to determine if they are more appropriate for predicting future return volatility. Employing German DAX-index return data it is found that past returns do not contain useful information beyond the volatility expectations already reflected in option prices. This supports the efficient market hypothesis for the DAX-index options market.
- 2002, 10
Mixed normal conditional heteroskedasticity
Marc S. Paolella
- Both unconditional mixed-normal distributions and GARCH models with fat-tailed conditional distributions have been employed for modeling financial return data. We consider a mixed-normal distribution coupled with a GARCH-type structure which allows for conditional variance in each of the components as well as dynamic feedback between the components. Special cases and relationships with previously proposed specifications are discussed and stationarity conditions are derived. An empirical application to NASDAQ-index data indicates the appropriateness of the model class and illustrates that the approach can generate a plausible disaggregation of the conditional variance process, in which the components' volatility dynamics have a clearly distinct behavior that is, for example, compatible with the well-known leverage effect. Klassifikation: C22, C51, G10