Forecasting UK stock prices
- 1 June 1996
- journal article
- research article
- Published by Informa UK Limited in Applied Financial Economics
- Vol. 6 (3), 279-286
- https://doi.org/10.1080/096031096334303
Abstract
The Vector Autoregressive (VAR) model, the Error Correction Model (ECM), and the Kalman Filter Model (KFM) are used to forecast UK stock prices. The forecasting performance of the three models is compared using out of sample forecasting. The results show that the forecasting performance of the ECM is better than that of the VAR and the KFM, and that the VAR performs a forecasting better than the KFM. It seems that the ECM outperforms the VAR and the KFM, since the ECM allows for dynamic updating via an error correction term.Keywords
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