In the context of the portfolio allocation problem, i have calculated one step ahead volatility forecasts on a rolling window basis with DCC GARCH while re-estimating the parameters every 25th observation. I want to do the same using EWMA. The initial parameter that I used was 0.94 (for daily return data from riskmetrics). Now I am confused about whether I need to recalculate EWMA parameters the way I did for DCC GARCH or if I should just use 0.94 for each one step ahead forecast. If I need to re-estimate the parameters, how should I go about it? Thanks
1 Answer
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No, you do not need to reestimate the EWMA parameter. It is common to set the parameter at 0.94 (as in the Risk Metrics methodology). The parameter will be 0.94 in all of the moving windows within which you fit your models.
answered May 14, 2017 at 16:46