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Forecasting Volatility of Gold Price Using Markov Regime Switching and Trading Strategy

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Author(s): Bhusana Premanode | Pairote Sattayatham | Nop Sopipan

Journal: Advances in Molecular Imaging
ISSN 2161-6728

Volume: 02;
Issue: 01;
Start page: 121;
Date: 2012;
Original page

Keywords: Forecasting | Volatility | Gold Price | Markov Regime Switching

ABSTRACT
In this paper, we forecast the volatility of gold prices using Markov Regime Switching GARCH (MRS-GARCH) models. These models allow volatility to have different dynamics according to unobserved regime variables. The main purpose of this paper is to find out whether MRS-GARCH models are an improvement on the GARCH type models in terms of modeling and forecasting gold price volatility. The MRS-GARCH is best performance model for gold price volatility in some loss function. Moreover, we forecast closing prices of gold price to trade future contract. MRS-GARCH got the most cumulative return same GJR model.
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