Forecasting Changes in Copper Futures Volatility with GARCH Models Using an Iterated Algorithm

Forecasting Changes in Copper Futures Volatility with GARCH Models Using an Iterated Algorithm There is a gap in the literature regarding the out-of-sample forecasting ability of GARCH-type models applied to derivatives. A practitioner-oriented method (iterated cumulative sum of squares) is applied to detecting breakpoints in the variance of two copper futures series. Short-, intermediate-, and long-term out-of-sample forecasts of copper future series are compared to forecasts from a benchmark random walk model for each series. Not only do the GARCH-type models dominate the random walk model, but the relative improvement is fairly consistent across series, forecast horizon, and GARCH-type model. The evidence makes clear that, with few exceptions, the forecast improvement of the GARCH-type models over the RW model lies somewhere between 20–30%. It is particularly true that for the long-term close to close forecasts, there is great coherence among the forecasts. These all fall within a fairly narrow range. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

Forecasting Changes in Copper Futures Volatility with GARCH Models Using an Iterated Algorithm

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2003 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1023672428643
Publisher site
See Article on Publisher Site

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