Building a Sustainable GARCH Model to Forecast Rubber Price: Modified Huber Weighting Function Approach
DOI:
https://doi.org/10.21123/bsj.2023.7489Keywords:
Autoregressive, Dispersion, Forecasting, GARCH, HuberAbstract
The unstable and uncertain nature of natural rubber prices makes them highly volatile and prone to outliers, which can have a significant impact on both modeling and forecasting. To tackle this issue, the author recommends a hybrid model that combines the autoregressive (AR) and Generalized Autoregressive Conditional Heteroscedasticity (GARCH) models. The model utilizes the Huber weighting function to ensure the forecast value of rubber prices remains sustainable even in the presence of outliers. The study aims to develop a sustainable model and forecast daily prices for a 12-day period by analyzing 2683 daily price data from Standard Malaysian Rubber Grade 20 (SMR 20) in Malaysia. The analysis incorporates two dispersion measurements (IQR/3 and Sn) and three levels of IO contamination 0%, 10%, and 20%. The results indicate that using the Huber weighting function with the IQR/3 measurement to build the AR(1)-GARCH(2,1) model leads to better sustainability. These findings have the potential to enhance the GARCH model by modifying the weighting function of the M-estimator
Received 02/06/2022,
Revised 07/05/2023,
Accepted 09/05/2023,
Published Online First 20/07/2023
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