Multivariate Fractionally Integrated APARCH Modeling of Stock MarketVolatility: A multi-country study

Tse (1998) proposes a model which combines the fractionally integrated GARCH formulationof Baillie, Bollerslev and Mikkelsen (1996) with the asymmetric power ARCH specification of Ding,Granger and Engle (1993). This paper analyzes the applicability of a multivariate constant conditionalcorrelation version of the model to national stock market returns for eight countries. We find thismultivariate specification to be generally applicable once power, leverage and long-memory effects aretaken into consideration. In addition, we find that both the optimal fractional difierencing parameterand power transformation are remarkably similar across countries. Out-of-sample evidence for thesuperior forecasting ability of the multivariate FIAPARCH framework is provided in terms of forecasterror statistics and tests for equal forecast accuracy of the various models.[...]