Determinants of Short-term Volatility at the Warsaw Stock Exchange: In-sample vs. Out-of-sample Forecasts from Factor and Predictive GARCH Models

The paper presents factor and predictive GARCH(1,1) models of the Warsaw Stock Exchange (WSE) main index WIG. An approach where the mean equation of the GARCH model includes a deterministic part is applied. The models incorporate such explanatory variables as volume of trade and major international stock market indices. The paper exploits the direction quality measures that can be used as alternative measures to evaluate model goodness of fit. Finally, the in-sample versus the out-of-sample forecasts from the estimated models are compared and model forecasting performance is discussed.