Estimating and forecasting the volatility of Brazilian finance series using arch models
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1999-05-01
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The goal of this paper is to present a comprehensive emprical analysis of the return and conditional variance of four Brazilian financial series using models of the ARCH class. Selected models are then compared regarding forecasting accuracy and goodness-of-fit statistics. To help understanding the empirical results, a self-contained theoretical discussion of ARCH models is also presented in such a way that it is useful for the applied researcher. Empirical results show that although all series share ARCH and are leptokurtic relative to the Normal, the return on the US$ has clearly regime switchlng and no asymmetry for the variance, the return on COCOA has no asymmetry, while the returns on the Cbond and Telebras have clear signs of asymmetry favoring the leverage effect. Regarding forecasting, the best model overall was the EGARCH(l,l) in its Gaussian version. Regarding goodness-of-fit statistics, the SWARCH model did well, followed closely by the Student-t GARCH(l,l).