The Relative Performance of Conditional Volatility Models - An Empirical Evaluation on the Nordic Equity Markets
Abstract: By regressing volatility series of equity returns on macroeconomic variables using data from the Nordic countries, three conditional volatility models are evaluated on their ability to capture effects of long-run volatility shocks. In addition, the same models' short-run forecasting performance is tested by employing a rolling window approach. The results suggest that none of the models are superior of capturing long-run volatility effects. The same holds for the short-run forecasting performance. The Stochastic Volatility model has the worst performance on average, while the difference between the GARCH-type models are negligible.
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