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Forecasting stock price volatility: New evidence from the GARCH-MIDAS model

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  • Wang, Lu
  • Ma, Feng
  • Liu, Jing
  • Yang, Lin
Abstract
This paper introduces a combination of asymmetry and extreme volatility effects in order to build superior extensions of the GARCH-MIDAS model for modeling and forecasting the stock volatility. Our in-sample results clearly verify that extreme shocks have a significant impact on the stock volatility and that the volatility can be influenced more by the asymmetry effect than by the extreme volatility effect in both the long and short term. Out-of-sample results with several robustness checks demonstrate that our proposed models can achieve better performances in forecasting the volatility. Furthermore, the improvement in predictive ability is attributed more strongly to the introduction of asymmetry and extreme volatility effects for the short-term volatility component.

Suggested Citation

  • Wang, Lu & Ma, Feng & Liu, Jing & Yang, Lin, 2020. "Forecasting stock price volatility: New evidence from the GARCH-MIDAS model," International Journal of Forecasting, Elsevier, vol. 36(2), pages 684-694.
    • Handle: RePEc:eee:intfor:v:36:y:2020:i:2:p:684-694
    DOI: 10.1016/j.ijforecast.2019.08.005
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