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The two-component Beta-t-QVAR-M-lev: a new forecasting model

Author

Listed:
  • Michel Ferreira Cardia Haddad

    (Queen Mary University of London)

  • Szabolcs Blazsek

    (Universidad Francisco Marroquín
    Mercer University)

  • Philip Arestis

    (University of Cambridge)

  • Franz Fuerst

    (University of Cambridge)

  • Hsia Hua Sheng

    (Fundação Getulio Vargas)

Abstract

We introduce a new joint model of expected return and volatility forecasting, namely the two-component Beta-t-QVAR-M-lev (quasi-vector autoregression in-mean with leverage). The maximum likelihood estimator for the two-component Beta-t-QVAR-M-lev is an extension of theoretical results of the one-component Beta-t-QVAR-M. We compare the volatility forecasting performance of the two-component Beta-t-QVAR-M-lev and two-component GARCH-M (generalized autoregressive conditional heteroscedasticity), also considering their one-component frameworks. The results for G20 stock market indices indicate that the forecasting performance of the two-component Beta-t-QVAR-M-lev is superior compared with the two-component GARCH-M and their one-component versions.

Suggested Citation

  • Michel Ferreira Cardia Haddad & Szabolcs Blazsek & Philip Arestis & Franz Fuerst & Hsia Hua Sheng, 2023. "The two-component Beta-t-QVAR-M-lev: a new forecasting model," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 37(4), pages 379-401, December.
    • Handle: RePEc:kap:fmktpm:v:37:y:2023:i:4:d:10.1007_s11408-023-00431-4
    DOI: 10.1007/s11408-023-00431-4
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    More about this item

    Keywords

    Dynamic conditional score (DCS); Generalized autoregressive score (GAS); Dynamic volatility models; Volatility forecasting; G20;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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