Forecasting the Finnish house price returns and volatility : a comparison of time series models
Dufitinema, Josephine (2021-04-11)
Emerald
11.04.2021
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2021041310190
https://urn.fi/URN:NBN:fi-fe2021041310190
Kuvaus
vertaisarvioitu
© Josephine Dufitinema. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes),subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
© Josephine Dufitinema. Published by Emerald Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0) licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes),subject to full attribution to the original publication and authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
Tiivistelmä
Purpose
The purpose of this paper is to compare different models’ performance in modelling and forecasting the Finnish house price returns and volatility.
Design/methodology/approach
The competing models are the autoregressive moving average (ARMA) model and autoregressive fractional integrated moving average (ARFIMA) model for house price returns. For house price volatility, the exponential generalized autoregressive conditional heteroscedasticity (EGARCH) model is competing with the fractional integrated GARCH (FIGARCH) and component GARCH (CGARCH) models.
Findings
Results reveal that, for modelling Finnish house price returns, the data set under study drives the performance of ARMA or ARFIMA model. The EGARCH model stands as the leading model for Finnish house price volatility modelling. The long memory models (ARFIMA, CGARCH and FIGARCH) provide superior out-of-sample forecasts for house price returns and volatility; they outperform their short memory counterparts in most regions. Additionally, the models’ in-sample fit performances vary from region to region, while in some areas, the models manifest a geographical pattern in their out-of-sample forecasting performances.
Research limitations/implications
The research results have vital implications, namely, portfolio allocation, investment risk assessment and decision-making.
Originality/value
To the best of the author’s knowledge, for Finland, there has yet to be empirical forecasting of either house price returns or/and volatility. Therefore, this study aims to bridge that gap by comparing different models’ performance in modelling, as well as forecasting the house price returns and volatility of the studied market.
The purpose of this paper is to compare different models’ performance in modelling and forecasting the Finnish house price returns and volatility.
Design/methodology/approach
The competing models are the autoregressive moving average (ARMA) model and autoregressive fractional integrated moving average (ARFIMA) model for house price returns. For house price volatility, the exponential generalized autoregressive conditional heteroscedasticity (EGARCH) model is competing with the fractional integrated GARCH (FIGARCH) and component GARCH (CGARCH) models.
Findings
Results reveal that, for modelling Finnish house price returns, the data set under study drives the performance of ARMA or ARFIMA model. The EGARCH model stands as the leading model for Finnish house price volatility modelling. The long memory models (ARFIMA, CGARCH and FIGARCH) provide superior out-of-sample forecasts for house price returns and volatility; they outperform their short memory counterparts in most regions. Additionally, the models’ in-sample fit performances vary from region to region, while in some areas, the models manifest a geographical pattern in their out-of-sample forecasting performances.
Research limitations/implications
The research results have vital implications, namely, portfolio allocation, investment risk assessment and decision-making.
Originality/value
To the best of the author’s knowledge, for Finland, there has yet to be empirical forecasting of either house price returns or/and volatility. Therefore, this study aims to bridge that gap by comparing different models’ performance in modelling, as well as forecasting the house price returns and volatility of the studied market.
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