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Forecasting Volatilty of Returns of Soy Oil Futures Using Garch Models

Journal of IMS Group

Volume 13 Issue 2

Published: 2016
Author(s) Name: Alok Kumar Sahai and Brijendra Pratap Singh | Author(s) Affiliation: Asst. Prof., Sri Sri University, Odisha, India and Asst. Prof., GLA Univ., Mathura, U.P., India
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Abstract

The purpose of this paper is to model and forecast the volatility of returns for soy oil futures prices using the GARCH family of models. Non linear models from GARCH family, specifically the TGARCH and EGARCH models are used to assess the role of time varying volatility of soy oil futures prices. The results reveal that soy oil futures do not exhibit different volatility responses to negative and positive shocks. The shocks to the conditional variance showed a high persistence. GARCH (1, 1) model was the most efficient for modeling the volatility based on Log likelihood, Akaike Information Criteria (AIC) and Schwarz Criteria (SC). We tested forecasting efficiency of the three variants of GARCH using four different criteria of root mean square error (RMSE), mean absolute error (MAE), mean absolute percent error (MAPE) and Theils inequality coefficient (TIC). While the models do not differ much on RMSE and MAE, GARCH (1, 1) performs best on TIC while TGARCH (1, 1) model performs best on the MAPE criteria.

Keywords: GARCH, TGARCH, EGARCH, Soy Oil, Conditional Volatility.

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