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Forecasting the Nikkei spot index with fractional cointegration
Author(s) -
Lien Donald,
Tse Yiu Kuen
Publication year - 1999
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/(sici)1099-131x(199907)18:4<259::aid-for723>3.0.co;2-7
Subject(s) - cointegration , heteroscedasticity , econometrics , autoregressive model , index (typography) , error correction model , economics , stock market index , stock (firearms) , mathematics , computer science , stock market , engineering , world wide web , mechanical engineering , paleontology , horse , biology
We investigate the forecast performance of the fractionally integrated error correction model against several competing models for the prediction of the Nikkei stock average index. The competing models include the martingale model, the vector autoregressive model and the conventional error correction model. We consider models with and without conditional heteroscedasticity. For forecast horizons of over twenty days, the best forecasting performance is obtained for the model when fractional cointegration is combined with conditional heteroscedasticity. Our results reinforce the notion that cointegration and fractional cointegration are important for long‐horizon prediction. Copyright © 1999 John Wiley & Sons, Ltd.