Macroeconomic fundamentals, jump dynamics and expected volatility



Pan, Zhiyuan, Bu, Ruijun ORCID: 0000-0002-3947-3038, Liu, Li and Wang, Yudong
(2020) Macroeconomic fundamentals, jump dynamics and expected volatility. QUANTITATIVE FINANCE, 20 (8). pp. 1345-1371.

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Abstract

In this paper, we develop a new volatility model capturing the effects of macroeconomic variables and jump dynamics on the stock volatility. The proposed GARCH-Jump-MIDAS model is applied to the S&P 500 index. Our in-sample results indicate that macroeconomic activities have important impacts on aggregate market volatility. Out-of-sample evidence suggests that our model with macroeconomic variables significantly outperform a wide range of competitors including the original GARCH(1,1), GARCH-MIDAS and GJR-A-MIDAS models. The volatility timing results also show that the information from jumps and macroeconomic activity is helpful for improving the portfolio performance.

Item Type: Article
Uncontrolled Keywords: Macroeconomic activity, Jump, Volatility, Portfolio, Loss function
Depositing User: Symplectic Admin
Date Deposited: 03 Apr 2020 11:00
Last Modified: 18 Jan 2023 23:56
DOI: 10.1080/14697688.2020.1736317
Related URLs:
URI: https://livrepository.liverpool.ac.uk/id/eprint/3081595