Modeling and Forecasting Realized Range Volatility

Marco Fanno Working Paper No. 128-2011

10 Pages Posted: 6 Feb 2011

See all articles by Massimiliano Caporin

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Gabriel G. Velo

University of Padua - Department of Economics

Date Written: February 5, 2011

Abstract

In this paper, we estimate, model and forecast Realized Range Volatility, a new realized measure and estimator of the quadratic variation of financial prices. This estimator was early introduced in the literature and it is based on the high-low range observed at high frequency during the day. We consider the impact of the microstructure noise in high frequency data and correct our estimations, following a known procedure. Then, we model the Realized Range accounting for the well-known stylized effects present in financial data. We consider an HAR model with asymmetric effects with respect to the volatility and the return, and GARCH and GJR-GARCH specifications for the variance equation. Moreover, we also consider a non Gaussian distribution for the innovations. The analysis of the forecast performance during the different periods suggests that including the HAR components in the model improve the point forecasting accuracy while the introduction of asymmetric effects only leads to minor improvements.

Keywords: Statistical analysis of financial data, Econometrics, Forecasting methods, Time series analysis, Realized Range Volatility, Realized Volatility, Long-memory, Volatility forecasting

JEL Classification: C22, C52, C53, C58

Suggested Citation

Caporin, Massimiliano and Velo, Gabriel G., Modeling and Forecasting Realized Range Volatility (February 5, 2011). Marco Fanno Working Paper No. 128-2011, Available at SSRN: https://ssrn.com/abstract=1755488 or http://dx.doi.org/10.2139/ssrn.1755488

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Gabriel G. Velo (Contact Author)

University of Padua - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy

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