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ARCH modeling: forecasting the return in the UK stock market
Finance & Accounting
Pages 42 (10542 words)
ARCH modeling: forecasting the return in the UK stock market TABLE OF CONTENTS Introduction 4 Literature Review 8 Methodology Review 34 Empirical Results 37 Conclusion 45 Bibliography 48 Abstract Empirical researches have proved the predictive ability of ARCH models in forecasting equity return volatility.
On the other hand, the index helps ARCH models to bring forth exact forecasts for out-of-sample forecasting on considering performance measures. This study would help to develop an investing strategy based on the results that would bring about significant positive returns. Keywords: ARCH Models, Stock index volatility, Predictive ability, ARCH modeling: forecasting the return in the UK stock market Introduction There have been quite a number of studies which show that different parameters of ARCH models offer good estimates of equity returns. The compatibility of ARCH models are evident in Bollerslave, Engle and Nelson (1994), Glosten, Jegannathan and Runkle (1993) and Bevan, Ser-Huang and Stephen (2000). However, many studies, including Akgiray (1989), Franses and Van Dijk (1995) Figlewski (1997), have come up with mixed results on the predictive ability of ARCH models in the equity return volatility. Avoiding out-of-sample forecasting, in-sample predictive ability can be proved by data probing (Dimson and Marsh 1990). Except for the out-of -sample forecasting, theoretical methods in ARCH models show accurate results in high frequencies. Nelson and Foster (1995) have, further, developed conditions that enabled ARCH models to improve predictive abilities for the long term forecasting. For the purposes of economic statistics and econometric calculations a wide range of tools and theories are available. ...
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