eprintid: 13713 rev_number: 17 eprint_status: archive userid: 353 dir: disk0/00/01/37/13 datestamp: 2016-08-16 06:24:38 lastmod: 2021-08-27 17:27:36 status_changed: 2016-08-16 06:24:52 type: article metadata_visibility: show creators_name: Huber, F. creators_name: Krisztin, T. creators_name: Piribauer, P. creators_id: 2088 creators_orcid: 0000-0002-9241-8628 title: Forecasting Global Equity Indices using Large Bayesian VARs ispublished: pub divisions: prog_esm keywords: BVAR; equity indices; forecasting; log-scores; stochastic volatility; C11; C22; C53; E17; G11 abstract: This paper proposes a large Bayesian Vector Autoregressive (BVAR) model with common stochastic volatility to forecast global equity indices. Using a monthly dataset on global stock indices, the BVAR model controls for co-movement commonly observed in global stock markets. Moreover, the time-varying specification of the covariance structure accounts for sudden shifts in the level of volatility. In an out-of-sample forecasting application we show that the BVAR model with stochastic volatility significantly outperforms the random walk both in terms of point as well as density predictions. The BVAR model without stochastic volatility, on the other hand, shows some merits relative to the random walk for forecast horizons greater than six months ahead. In a portfolio allocation exercise we moreover provide evidence that it is possible to use the forecasts obtained from our model with common stochastic volatility to set up simple investment strategies. Our results indicate that these simple investment schemes outperform a naive buy-and-hold strategy. date: 2017-07-10 date_type: published publisher: Wiley-Blackwell id_number: 10.1111/boer.12094 creators_browse_id: 167 full_text_status: public publication: Bulletin of Economic Research volume: 69 number: 3 pagerange: 288-308 refereed: TRUE issn: 03073378 coversheets_dirty: FALSE fp7_project: no fp7_type: info:eu-repo/semantics/article citation: Huber, F., Krisztin, T. ORCID: https://orcid.org/0000-0002-9241-8628 , & Piribauer, P. (2017). Forecasting Global Equity Indices using Large Bayesian VARs. Bulletin of Economic Research 69 (3) 288-308. 10.1111/boer.12094 . document_url: https://pure.iiasa.ac.at/id/eprint/13713/1/FORECASTING%20GLOBAL%20EQUITY%20INDICES%20USING%20LARGE%20BAYESIAN%20VARS.pdf