RePEc: Research Papers in Economics
Research Papers in Economics is a collaborative effort of hundreds of volunteers in many countries to enhance the dissemination of research in economics.
NCER Working Paper Series
2018
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#119Download full text
- JEL-Codes:
- C22, G00
- Keywords:
- Multivariate volatility, combination forecasts, forecast evaluation, model confidence set
Combining Multivariate Volatility Forecasts using Weighted Losses
The ability to improve out-of-sample forecasting performance by combining forecasts is well established in the literature. This paper advances this literature in the area of multivariate volatility forecasts by developing two combination weighting schemes that are capable of placing varying emphasis on losses within the combination estimation period. A comprehensive empirical analysis of the out-of-sample forecast performance across varying dimensions, loss functions, sub-samples and forecast horizons show that new approaches significantly outperform their counterparts in terms of statistical accuracy. Within the financial applications considered, significant benefits from combination forecasts relative to the individual candidate models are observed. Although the more sophisticated combination approaches consistently rank higher relative to the equally weighted approach, their performance is statistically indistinguishable given the relatively low power of these loss functions. Finally, within the applications, further analysis highlights how combination forecasts dramatically reduce the variability in the parameter of interest, namely the portfolio weight or beta.
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#118Download full text
- JEL-Codes:
- C22; G00
- Keywords:
- News, media, linguistic analysis, volatility, crude oil
Media attention and crude oil volatility: Is there any 'new' news in the newspaper?
In recent years there has been a growing interest in the analysis of large volumes of unscheduled news flow. Such news flow has often been used as an exogenous variable for explaining asset returns and or volatility. This paper examines the dynamic relationship between news flow and asset price dynamics from a different perspective. A novel index of media attention is proposed, and in the context of the crude oil market the linkages between media attention and returns and volatility are examined. It is found that media attention reacts strongly to shocks to volatility whereas there is little impact in the opposite direction. As such media attention seems to inherit the persistence in volatility but offers only a little more in terms of information relevant to future volatility. Therefore media attention does not offer a great deal of new news useful for explaining volatility.