A Volatility Targeting GARCH model with Time-Varying Coefficients*
نویسندگان
چکیده
The current paper proposes a conditional volatility model with time varying coefficients based on a multinomial switching mechanism. By giving more weight to either the persistence or shock term in a GARCH model, conditional on their relative ability to forecast a benchmark volatility measure, the switching reinforces the persistent nature of the GARCH model. Estimation of this volatility targeting or VTGARCH model for Dow 30 stocks indicates that the switching model is able to outperform a number of relevant GARCH setups, both inand out-of-sample, also without any informational advantages.
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