Forecasting Volatility and Price of the SET50 Index using the Markov Regime Switching

DOI: 10.5176/2251-2012_QQE14

Authors: Pairote Sattayatham, Nop Sopipan and Bhusana Premanode

Abstract:

In this paper, we forecast the volatility and price of SET50 Index using the Markov Regime Switching GARCH (MRS-GARCH) models. These models allow volatility to have different dynamics according to unobserved regime variables. The main purpose of this paper is to find out whether the MRS-GARCH models are an improvement on the GARCH type models in terms of modeling and forecast volatility and price of the SET50 Index. The MRS-GARCH under the GED distribution is best performance model for the SET50 Index volatility. Moreover, we forecast closing price of SET50 Index, we found the MRS-GARCH under t-distribution with two degree of freedoms model is perform best.

Keywords: Forecasting, Volatility, SET50 Index, Markov Regime Switching

LinkOut:    ScienceDirect