GAS or GARCH: A comparison of density and VaR forecasts in Turkish FX and stock markets

Ali Ulvi Özgül

Makale detayları

GAS or GARCH: A comparison of density and VaR forecasts in Turkish FX and stock markets

Yazarlar:

Ali Ulvi Özgül

Yayıncı:

Istanbul University

Ana Başlıklar:

Financial Econometrics | Financial Forecast and Modelling

Dergi:

Istanbul Business Research Vol.54 Issue 1, pp.56-86

Belge Tipi:

Makale

Yayın Tarihi:

5/2025

Belge Dili:

İngilizce

Document ID (Org No.):

2001350076

pISSN:

2630-5488

Anahtar kelimeler:

Özet:

 This paper compares the renowned GARCH model with a novel one, the Generalized Autoregressive Score GAS model in terms of forecasting performance. Considering the gap in the literature, this study focuses on the Turkish stock and FX markets. The analysis covers 25 years 1999-2023, of which the last 12 constitute the out-of-sample period. The selected indexes largely represent the finance XBANK and industry XUSIN sectors and the entire XUTUM economy, while the fourth XU100 is the market benchmark. Likewise, FX rates are the leading factors that dominate Turkish foreign trade. Rolling density forecasts from the standard versions of the models are compared via Diebold-Mariano DM test with the two popular scoring rules. The GARCH model generally outperforms GAS when the conditional distribution is the Normal or its skewed version. We find some evidence for the reverse with Student-t and skewed version, but this lacks statistical support, except for the definite superiority of GAS in USD returns coupled with skewed Student-t. A deeper analysis attributed GASs underperformance to its treatment of shocks that are more likely to occur in developing markets. We also report similar findings with DM tests using two loss functions for VaR forecasts, whereas the results of the backtesting procedures are inconsistent across risk levels.

 This paper compares the renowned GARCH model with a novel one, the Generalized Autoregressive Score GAS model in terms of forecasting performance. Considering the gap in the literature, this study focuses on the Turkish stock and FX markets. The analysis covers 25 years 1999-2023, of which the last 12 constitute the out-of-sample period. The selected indexes largely represent the finance XBANK and industry XUSIN sectors and the entire XUTUM economy, while the fourth XU100 is the market benchmark. Likewise, FX rates are the leading factors that dominate Turkish foreign trade. Rolling density forecasts from the standard versions of the models are compared via Diebold-Mariano DM test with the two popular scoring rules. The GARCH model generally outperforms GAS when the conditional distribution is the Normal or its skewed version. We find some evidence for the reverse with Student-t and skewed version, but this lacks statistical support, except for the definite superiority of GAS in USD returns coupled with skewed Student-t. A deeper analysis attributed GASs underperformance to its treatment of shocks that are more likely to occur in developing markets. We also report similar findings with DM tests using two loss functions for VaR forecasts, whereas the results of the backtesting procedures are inconsistent across risk levels.

 This paper compares the renowned GARCH model with a novel one, the Generalized Autoregressive Score GAS model in terms of forecasting performance. Considering the gap in the literature, this study focuses on the Turkish stock and FX markets. The analysis covers 25 years 1999-2023, of which the last 12 constitute the out-of-sample period. The selected indexes largely represent the finance XBANK and industry XUSIN sectors and the entire XUTUM economy, while the fourth XU100 is the market benchmark. Likewise, FX rates are the leading factors that dominate Turkish foreign trade. Rolling density forecasts from the standard versions of the models are compared via Diebold-Mariano DM test with the two popular scoring rules. The GARCH model generally outperforms GAS when the conditional distribution is the Normal or its skewed version. We find some evidence for the reverse with Student-t and skewed version, but this lacks statistical support, except for the definite superiority of GAS in USD returns coupled with skewed Student-t. A deeper analysis attributed GASs underperformance to its treatment of shocks that are more likely to occur in developing markets. We also report similar findings with DM tests using two loss functions for VaR forecasts, whereas the results of the backtesting procedures are inconsistent across risk levels.

 This paper compares the renowned GARCH model with a novel one, the Generalized Autoregressive Score GAS model in terms of forecasting performance. Considering the gap in the literature, this study focuses on the Turkish stock and FX markets. The analysis covers 25 years 1999-2023, of which the last 12 constitute the out-of-sample period. The selected indexes largely represent the finance XBANK and industry XUSIN sectors and the entire XUTUM economy, while the fourth XU100 is the market benchmark. Likewise, FX rates are the leading factors that dominate Turkish foreign trade. Rolling density forecasts from the standard versions of the models are compared via Diebold-Mariano DM test with the two popular scoring rules. The GARCH model generally outperforms GAS when the conditional distribution is the Normal or its skewed version. We find some evidence for the reverse with Student-t and skewed version, but this lacks statistical support, except for the definite superiority of GAS in USD returns coupled with skewed Student-t. A deeper analysis attributed GASs underperformance to its treatment of shocks that are more likely to occur in developing markets. We also report similar findings with DM tests using two loss functions for VaR forecasts, whereas the results of the backtesting procedures are inconsistent across risk levels.

Makale detayları

GAS or GARCH: A comparison of density and VaR forecasts in Turkish FX and stock markets

Yazarlar:

Ali Ulvi Özgül

Yayıncı:

Istanbul University

Ana Başlıklar:

Financial Econometrics | Financial Forecast and Modelling

Dergi:

Istanbul Business Research Vol.54 Issue 1, pp.56-86

Belge Tipi:

Makale

Yayın Tarihi:

5/2025

Belge Dili:

İngilizce

Document ID (Org No.):

2001350076

pISSN:

2630-5488

GARCH model

GAS model

Density forecast

Density score function

Forecast evaluation

Value-at-risk

Sayı

Makale detayları

GAS or GARCH: A comparison of density and VaR forecasts in Turkish FX and stock markets

Yazarlar: Ali Ulvi Özgül

Yayıncı: Istanbul University

Ana Başlıklar: Financial Econometrics | Financial Forecast and Modelling

Dergi: Istanbul Business Research Vol.54 Issue 1, pp.56-86

Belge Tipi: Makale

Yayın Tarihi: 5/2025

Belge Dili: İngilizce

Document ID (Org No.): 2001350076

pISSN: 2630-5488

GARCH model

GAS model

Density forecast

Density score function

Forecast evaluation

Value-at-risk

Sayı

Yazarlar:

Ali Ulvi Özgül

Yayıncı:

Istanbul University

Ana Başlıklar:

Financial Econometrics | Financial Forecast and Modelling

Dergi:

Istanbul Business Research Vol.54 Issue 1, pp.56-86

Belge Tipi:

Makale

Yayın Tarihi:

5/2025

Belge Dili:

İngilizce

Document ID (Org No.):

2001350076

pISSN:

2630-5488