Financial Assets Return Volatility Modeling with Using Dynamics of Describing the Mechanism for Transforming the Return Volatility

DOI

10.2991/aebmr.k.200114.052How to use a DOI?

Keywords

micro/macro level volatility clustering, diversification potential, EMH, volatility forecast, MEWMA, OGARCH, DCC, HAR-RV

Abstract

The author suggests approaches to modeling volatility of returns of financial assets, different from the existing higher level of accuracy when out-of-sample prediction (with the formal proof on the basis of procedure - the Model Confidence Set) by taking into account the dynamics of diversification of market potential, able to describe the transformation mechanism of clustering of volatility of returns on micro-level clustering of volatility of returns on the macro level, the example of the Russian financial market. Comparison of different approaches to modeling diveraification potential based on the model families MEWMA, OGARCH, DCC and realized covariation it was found that the best quality of forecasting volatility of financial assets yield in most cases is provided by using the DCC model to calculate the index of diversification potential. This is true for stocks, stock indices and random financial portfolios. It is better to calculate diversification potential based on the OGARCH model to predict the volatility of the profitability of Markovitz-efficient financial portfolios. The results obtained can be used by private investors and financial institutions to predict the volatility of financial asset returns. Financial regulators can use the diversification potential index as an indicator of macroeconomic risks in general.

Copyright

© 2020, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - A.R. Nagapetyan
PY  - 2020
DA  - 2020/01/18
TI  - Financial Assets Return Volatility Modeling with Using Dynamics of Describing the Mechanism for Transforming the Return Volatility
BT  - Proceedings of the First International Volga Region Conference on Economics, Humanities and Sports (FICEHS 2019)
PB  - Atlantis Press
SP  - 222
EP  - 226
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.200114.052
DO  - 10.2991/aebmr.k.200114.052
ID  - Nagapetyan2020
ER  -