TITLE:
Volatility Prediction: A Study with Structural Breaks
AUTHORS:
Dilip Kumar
KEYWORDS:
CARR Model, AddRS Estimator, Volatility Forecast Evaluation, GARCH Family of Models
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.6,
April
23,
2018
ABSTRACT: We incorporate the impact of structural breaks in
the unbiased unconditional volatility as proposed by Kumar and Maheswaran with
a conditional autoregressive range (CARR) model. The findings of the proposed
framework are compared with the findings based on the volatility forecasts of
the GARCH model with and without structural breaks in volatility. Our findings
based on the analysis on S&P 500, FTSE 100, SZSE Composite and FBMKLCI
indices indicate that the proposed framework effectively captures the dynamics
of conditional volatility and provides better out-of-sample forecasts relative
to GARCH models with and without structural breaks in volatility.