Forecast Conditional Mean and Variance Model
This example shows how to forecast responses and conditional variances from a composite conditional mean and variance model.
Step 1. Load the data and fit a model.
Load the NASDAQ data included with the toolbox. Fit a conditional mean and variance model to the data.
load Data_EquityIdx nasdaq = DataTable.NASDAQ; r = price2ret(nasdaq); N = length(r); Mdl = arima('ARLags',1,'Variance',garch(1,1),... 'Distribution','t'); EstMdl = estimate(Mdl,r,'Variance0',{'Constant0',0.001});
ARIMA(1,0,0) Model (t Distribution): Value StandardError TStatistic PValue _________ _____________ __________ __________ Constant 0.0009512 0.00017067 5.5734 2.4983e-08 AR{1} 0.13981 0.019066 7.3329 2.2518e-13 DoF 8.3991 1.0347 8.117 4.7768e-16 GARCH(1,1) Conditional Variance Model (t Distribution): Value StandardError TStatistic PValue __________ _____________ __________ __________ Constant 1.6209e-06 6.1682e-07 2.6279 0.0085912 GARCH{1} 0.89664 0.011218 79.925 0 ARCH{1} 0.095524 0.010995 8.6877 3.698e-18 DoF 8.3991 1.0347 8.117 4.7768e-16
[E0,V0] = infer(EstMdl,r);
Step 2. Forecast returns and conditional variances.
Use forecast
to compute MMSE forecasts of the returns and conditional variances for a 1000-period future horizon. Use the observed returns and inferred residuals and conditional variances as presample data.
[Y,YMSE,V] = forecast(EstMdl,1000,r,'E0',E0,'V0',V0); upper = Y + 1.96*sqrt(YMSE); lower = Y - 1.96*sqrt(YMSE); figure subplot(2,1,1) plot(r,'Color',[.75,.75,.75]) hold on plot(N+1:N+1000,Y,'r','LineWidth',2) plot(N+1:N+1000,[upper,lower],'k--','LineWidth',1.5) xlim([0,N+1000]) title('Forecasted Returns') hold off subplot(2,1,2) plot(V0,'Color',[.75,.75,.75]) hold on plot(N+1:N+1000,V,'r','LineWidth',2); xlim([0,N+1000]) title('Forecasted Conditional Variances') hold off
The conditional variance forecasts converge to the asymptotic variance of the GARCH conditional variance model. The forecasted returns converge to the estimated model constant (the unconditional mean of the AR conditional mean model).