Volatility Forecasting Using Geopolitical Risk Indices: A GARCH-MIDAS Approach
(2024) NEKP01 20241Department of Economics
- Abstract
- This paper applies the GARCH-MIDAS (mixed data sampling) framework to examine if geopolitical risk indices (GPR) have predictive ability when forecasting stock market volatility in advanced economies. Stock market indices and country-specific GPR indices from 21 advanced economies are used to examine the out-of-sample predictability of short-term total variance and long-term variance. The main finding of this paper is that geopolitical risk indices have a predictive ability for stock market volatility in certain advanced economies, but not in all advanced economies. The improvement of forecasting ability is evident for both short-term total variance and long-term variance but is primarily related to long-term variance. The results are of... (More)
- This paper applies the GARCH-MIDAS (mixed data sampling) framework to examine if geopolitical risk indices (GPR) have predictive ability when forecasting stock market volatility in advanced economies. Stock market indices and country-specific GPR indices from 21 advanced economies are used to examine the out-of-sample predictability of short-term total variance and long-term variance. The main finding of this paper is that geopolitical risk indices have a predictive ability for stock market volatility in certain advanced economies, but not in all advanced economies. The improvement of forecasting ability is evident for both short-term total variance and long-term variance but is primarily related to long-term variance. The results are of practical relevance for both investors and risk managers. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9173423
- author
- Nilsson, Albin LU
- supervisor
- organization
- course
- NEKP01 20241
- year
- 2024
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- Geopolitical Risk, Stock Market Volatility, GARCH-MIDAS, Advanced Economies
- language
- English
- id
- 9173423
- date added to LUP
- 2024-10-01 13:19:46
- date last changed
- 2024-10-01 13:19:46
@misc{9173423, abstract = {{This paper applies the GARCH-MIDAS (mixed data sampling) framework to examine if geopolitical risk indices (GPR) have predictive ability when forecasting stock market volatility in advanced economies. Stock market indices and country-specific GPR indices from 21 advanced economies are used to examine the out-of-sample predictability of short-term total variance and long-term variance. The main finding of this paper is that geopolitical risk indices have a predictive ability for stock market volatility in certain advanced economies, but not in all advanced economies. The improvement of forecasting ability is evident for both short-term total variance and long-term variance but is primarily related to long-term variance. The results are of practical relevance for both investors and risk managers.}}, author = {{Nilsson, Albin}}, language = {{eng}}, note = {{Student Paper}}, title = {{Volatility Forecasting Using Geopolitical Risk Indices: A GARCH-MIDAS Approach}}, year = {{2024}}, }