Support Vector Machine GARCH and Neural Network GARCH Models in Modeling Conditional Volatility: An Application to Turkish Financial Markets

14 Pages Posted: 4 Mar 2013

See all articles by Melike Bildirici

Melike Bildirici

Yildiz Technical University

Ozgur Omer Ersin

Istanbul Ticaret University

Date Written: May 22, 2012

Abstract

The Turkish version of this paper can be found at: http://ssrn.com/abstract=2222071

The study aims to investigate linear GARCH, fractionally integrated FI-GARCH and Asymmetric Power APGARCH models and their nonlinear counterparts based on Support Vector Regression (SVR) and Neural Network (NN) models. GARCH family models are extended to NN-GARCH architecture of Donaldson and Kamstra (1997) to various NN-GARCH family models (Bildirici and Ersin, 2009) such as NN-APGARCH model. The study aims to introduce a class of extended NN-GARCH and SVR-GARCH family of models with nonlinear augmentations in modeling both the conditional mean and variance. The SVR-GARCH, SVR-APGARCH and SVR-FIAPGARCH and their Multi-Layer Perceptron architecture based counterparts, MLP-GARCH, MLP-APGARCH and MLP-FIAPGARCH are evaluated. An application to daily returns in Istanbul ISE100 stock index is provided. Results suggest that volatility clustering, asymmetry and nonlinearity characteristics are modeled more efficiently with the models possessing neural network architectures.

Keywords: G12, C32, C52, C53

JEL Classification: Volatility, Stock Returns, ARCH, Fractional Integration, MLP, SVR

Suggested Citation

Bildirici, Melike and Ersin, Ozgur Omer, Support Vector Machine GARCH and Neural Network GARCH Models in Modeling Conditional Volatility: An Application to Turkish Financial Markets (May 22, 2012). Available at SSRN: https://ssrn.com/abstract=2227747 or http://dx.doi.org/10.2139/ssrn.2227747

Melike Bildirici

Yildiz Technical University ( email )

Davutpasa Mh., Esenler
Besiktas, Istanbul 80750
Turkey

Ozgur Omer Ersin (Contact Author)

Istanbul Ticaret University ( email )

Imrahor caddesi, Sutluce
Istanbul
Turkey

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