NoVaS Transforms

NoVaS Transforms - Department of Economics, UCSD...

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Unformatted text preview: Department of Economics, UCSD (University of California, San Diego) Year Paper - NoVaS Transformations: Flexible Inference for Volatility Forecasting Dimitris N. Politis * Dimitrios D. Thomakos † * University of California, San Diego † University of Peloponnese This paper is posted at the eScholarship Repository, University of California. http://repositories.cdlib.org/ucsdecon/2008-13 Copyright c 2008 by the authors. NoVaS Transformations: Flexible Inference for Volatility Forecasting Abstract In this paper we present several new¯ndings on the NoVaS transformation approach for volatility forecasting introduced by Politis (2003a,b, 2007). In par- ticular: (a) we present a new method for accurate volatility forecasting using NoVaS ; (b) we introduce a \ time- varying” version of NoVaS and show that the NoVaS methodology is applicable in situations where (global) stationarity for returns fails such as the cases of local stationarity and/or structural breaks and/or model uncertainty; (c) we conduct an extensive simulation study on the forecasting ability of the NoVaS approach under a variety of realistic data gener- ating processes (DGP); and (d) we illustrate the forecasting ability of NoVaS on a number of real datasets and compare it to realized and range-based volatility measures. Our empirical results show that the NoVaS -based forecasts lead to a much ‘tighter’ distribution of the forecasting performance measure. Perhaps our most remarkable¯nding is the robustness of the NoVaS forecasts in the context of structural breaks and/or other non-stationarities of the underlying data. Also striking is that forecasts based on NoVaS invariably outperform those based on the benchmark GARCH(1,1) even when the true DGP is GARCH(1,1) when the sample size is moderately large, e.g. 350 daily observations. NoVaS Transformations: Flexible Inference for Volatility Forecasting * Dimitris N. Politis † Department of Mathematics and Department of Economics University of California, San Diego Address: La Jolla, CA 92093-0112, USA Telephone: (858) 534-5861; Fax: (858) 534-5273 Email: [email protected] & Dimitrios D. Thomakos Department of Economics University of Peloponnese, Greece Rimini Center for Economic Analysis, Italy Email: [email protected] April 8, 2008 * Earlier results from this research were presented at the 56th Session of the ISI (Lisbon, 2007), the Department of Economics, University of Cyprus, and the Department of Economics, University of Crete, and Department of Accounting and Finance, Athens University of Economics and Business, Greece. We would like to thank Elena Andreou and seminar participants for useful comments and suggestions. All errors are ours....
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This note was uploaded on 12/26/2011 for the course ECON 245a taught by Professor Staff during the Fall '08 term at UCSB.

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NoVaS Transforms - Department of Economics, UCSD...

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