Abstract
This chapter discusses the topic of modeling and forecasting volatility in emerging market and presents the strength and weakness of the several high-frequency based approaches available in the literature. We compare the forecasting performance of traditional GARCH with high-frequency based models namely, HAR-RV, HAR-RV-J, and HAR-RV-CJ under the financial crisis and non-financial crisis periods. We extend our study scope by focusing not only on general market index BIST-30, but also on each constituent of market index. Our empirical results indicate that the global financial crisis does not affect the forecasting performance of the models in emerging markets. All high-frequency based volatility forecasting models perform better than the traditional ARCH-class models in both non-crisis and crisis periods. We conclude our paper with the statement that high-frequency based models do not affect the structural break in the underlying process. The best outperforming model among the high-frequency based volatility models for both stable and turmoil period is HAR-RV-CJ model. The empirical findings for the individual stocks are consistent with the general market index ISE-30.
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Notes
- 1.
In financial markets, heterogeneity may arise for many different reasons, e.g., differences in the time horizon, agents’ endowments, institutional constrains, risk profiles, and geographical locations (Corsi 2009).
- 2.
Realized variance is a conditionally unbiased estimator of daily conditional variance, and its main advantage is that it is a more efficient estimator than the others (Patton 2011).
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Yalaman, A., Saleem, S.A.A. (2017). Forecasting Emerging Market Volatility in Crisis Period: Comparing Traditional GARCH with High-Frequency Based Models. In: Hacioğlu, Ü., Dinçer, H. (eds) Global Financial Crisis and Its Ramifications on Capital Markets. Contributions to Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-47021-4_33
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