UPM Institutional Repository

Supremacy of realized variance MIDAS egression in volatility forecasting of mutual funds: empirical evidence from Malaysia


Wan, Cheong Kin and Choo, Wei Chong and Ho, Jen Sim (2022) Supremacy of realized variance MIDAS egression in volatility forecasting of mutual funds: empirical evidence from Malaysia. Journal of Asian Finance, Economics and Business, 9 (7). pp. 1-15. ISSN 2288-4637; ESSN: 2288-4645


Combining the strength of both Mixed Data Sampling (MIDAS) Regression and realized variance measures, this paper seeks to investigate two objectives: (1) evaluate the post-sample performance of the proposed weekly Realized Variance-MIDAS (RVar-MIDAS) in one-week ahead volatility forecasting against the established Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model and the less explored but robust STES (Smooth Transition Exponential Smoothing) methods. (2) comparing forecast error performance between realized variance and squared residuals measures as a proxy for actual volatility. Data of seven private equity mutual fund indices (generated from 57 individual funds) from two different time periods (with and without financial crisis) are applied to 21 models. Robustness of the post-sample volatility forecasting of all models is validated by the Model Confidence Set (MCS) Procedures and revealed: (1) The weekly RVar-MIDAS model emerged as the best model, outperformed the robust DAILY-STES methods, and the weekly DAILY-GARCH models, particularly during a volatile period. (2) models with realized variance measured in estimation and as a proxy for actual volatility outperformed those using squared residual. This study contributes an empirical approach to one-week ahead volatility forecasting of mutual funds return, which is less explored in past literature on financial volatility forecasting compared to stocks volatility.

Download File

Full text not available from this repository.

Additional Metadata

Item Type: Article
Divisions: School of Business and Economics
DOI Number: https://doi.org/10.13106/jafeb.2022.vol9.no7.0001
Publisher: Korea Institute of Science and Technology Information
Keywords: Mixed data sampling; Realized variance; Volatility forecasting; Smooth transition exponential smoothing; Mutual funds
Depositing User: Ms. Nuraida Ibrahim
Date Deposited: 26 Jun 2023 06:58
Last Modified: 26 Jun 2023 06:58
Altmetrics: http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.13106/jafeb.2022.vol9.no7.0001
URI: http://psasir.upm.edu.my/id/eprint/103363
Statistic Details: View Download Statistic

Actions (login required)

View Item View Item