Volatility Modeling and Forecasting of Istanbul Gold Exchange (IGE)

Abstract

In this study, we model the volatility dynamics of Istanbul Gold Exchange with several GARCH models, which incorporate asymmetry and long-range dependence in the conditional volatility. We use daily spot prices of the gold exchange from January 4, 2006 to November 20, 2013. In addition, forecasting performances of the models are evaluated based on three commonly used measures. We examine the out-of-sample predictions for 1, 5 and 20-days ahead as the portfolio managers usually focus on longer horizons (20-days) as well as relatively short horizons (1 and 5-days ahead). The forecasting results point out the superior performance of EGARCH and CGARCH models. Hence our results provide useful information for investors and portfolio managers to consider asymmetric reactions to the news and long-range dependence property of the gold market in Turkey.