A Volatility Targeting GARCH Model with Time-Varying Coefficients

The current paper proposes a conditional volatility model with time varying coefficients based on a multinomial switching mechanism. By giving more weight to either the persistence or shock term in a GARCH model, conditional on their relative ability to forecast a benchmark volatility measure, the switching reinforces the persistent nature of the GARCH model. Estimation of this volatility targeting or VT-GARCH model for Dow 30 stocks indicates that the switching model is able to outperform a number of relevant GARCH setups, both in- and out-of-sample, also without any informational advantages

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Year of publication:	[2009]
Authors:	Frijns, Bart
Other Persons:	Lehnert, Thorsten (contributor) ; Zwinkels, Remco C. J. (contributor)
Publisher:	[2009]: [S.l.] : SSRN

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