Enhancing stock volatility prediction with the AO-GARCH-MIDAS model
Research has substantiated that the presence of outliers in data usually introduces additional errors and biases, which typically leads to a degradation in the precision of volatility forecasts. However, correcting outliers can mitigate these adverse effects. This study corrects the additive outlier...
| Main Authors: | , , , , |
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| Format: | Article |
| Language: | English |
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Public Library of Science
2024
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| Online Access: | http://psasir.upm.edu.my/id/eprint/113480/ http://psasir.upm.edu.my/id/eprint/113480/1/113480.pdf |
| _version_ | 1848866236617719808 |
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| author | Liu, Ting Choo, Weichong Tunde, Matemilola Bolaji Wan, Cheongkin Liang, Yifan |
| author_facet | Liu, Ting Choo, Weichong Tunde, Matemilola Bolaji Wan, Cheongkin Liang, Yifan |
| author_sort | Liu, Ting |
| building | UPM Institutional Repository |
| collection | Online Access |
| description | Research has substantiated that the presence of outliers in data usually introduces additional errors and biases, which typically leads to a degradation in the precision of volatility forecasts. However, correcting outliers can mitigate these adverse effects. This study corrects the additive outliers through a weighting method and let these corrected values to replace the original outliers. Then, the model parameters are re-estimated based on this new return series. This approach reduces the extent to which outliers distort volatility estimates, allowing the model to better adapt to market conditions and improving the accuracy of volatility forecasts. This study introduces this approach for the first time to generalized autoregressive conditional heteroskedasticity mixed data sampling (GARCH-MIDAS) models, so as to establish an additional outliers corrected GARCH-MIDAS model (AO-GARCH-MIDAS). This pioneering approach marks a unique innovation. The research employs a diverse array of evaluation methods to validate the model’s robustness and consistently demonstrates its dependable performance. Findings unequivocally reveal the substantial influence of outliers on the model’s predictive capacity, with the AO-GARCH-MIDAS model exhibiting consistent superiority across all evaluation criteria. Additionally, while the GARCH model showcases stronger estimation capabilities compared to the GARCH-MIDAS model, the latter demonstrates heightened predictive prowess. Notably, regarding variable selection, the results underscore the greater predictive informational value inherent in realized volatility over other low-frequency factors. |
| first_indexed | 2025-11-15T14:17:24Z |
| format | Article |
| id | upm-113480 |
| institution | Universiti Putra Malaysia |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-15T14:17:24Z |
| publishDate | 2024 |
| publisher | Public Library of Science |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | upm-1134802024-11-25T09:11:48Z http://psasir.upm.edu.my/id/eprint/113480/ Enhancing stock volatility prediction with the AO-GARCH-MIDAS model Liu, Ting Choo, Weichong Tunde, Matemilola Bolaji Wan, Cheongkin Liang, Yifan Research has substantiated that the presence of outliers in data usually introduces additional errors and biases, which typically leads to a degradation in the precision of volatility forecasts. However, correcting outliers can mitigate these adverse effects. This study corrects the additive outliers through a weighting method and let these corrected values to replace the original outliers. Then, the model parameters are re-estimated based on this new return series. This approach reduces the extent to which outliers distort volatility estimates, allowing the model to better adapt to market conditions and improving the accuracy of volatility forecasts. This study introduces this approach for the first time to generalized autoregressive conditional heteroskedasticity mixed data sampling (GARCH-MIDAS) models, so as to establish an additional outliers corrected GARCH-MIDAS model (AO-GARCH-MIDAS). This pioneering approach marks a unique innovation. The research employs a diverse array of evaluation methods to validate the model’s robustness and consistently demonstrates its dependable performance. Findings unequivocally reveal the substantial influence of outliers on the model’s predictive capacity, with the AO-GARCH-MIDAS model exhibiting consistent superiority across all evaluation criteria. Additionally, while the GARCH model showcases stronger estimation capabilities compared to the GARCH-MIDAS model, the latter demonstrates heightened predictive prowess. Notably, regarding variable selection, the results underscore the greater predictive informational value inherent in realized volatility over other low-frequency factors. Public Library of Science 2024 Article PeerReviewed text en cc_by_4 http://psasir.upm.edu.my/id/eprint/113480/1/113480.pdf Liu, Ting and Choo, Weichong and Tunde, Matemilola Bolaji and Wan, Cheongkin and Liang, Yifan (2024) Enhancing stock volatility prediction with the AO-GARCH-MIDAS model. PLoS ONE, 19 (6). art. no. e0305420. pp. 1-20. ISSN 1932-6203; eISSN: 1932-6203 https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0305420 10.1371/journal.pone.0305420 |
| spellingShingle | Liu, Ting Choo, Weichong Tunde, Matemilola Bolaji Wan, Cheongkin Liang, Yifan Enhancing stock volatility prediction with the AO-GARCH-MIDAS model |
| title | Enhancing stock volatility prediction with the AO-GARCH-MIDAS model |
| title_full | Enhancing stock volatility prediction with the AO-GARCH-MIDAS model |
| title_fullStr | Enhancing stock volatility prediction with the AO-GARCH-MIDAS model |
| title_full_unstemmed | Enhancing stock volatility prediction with the AO-GARCH-MIDAS model |
| title_short | Enhancing stock volatility prediction with the AO-GARCH-MIDAS model |
| title_sort | enhancing stock volatility prediction with the ao-garch-midas model |
| url | http://psasir.upm.edu.my/id/eprint/113480/ http://psasir.upm.edu.my/id/eprint/113480/ http://psasir.upm.edu.my/id/eprint/113480/ http://psasir.upm.edu.my/id/eprint/113480/1/113480.pdf |