A Comparison of Seasonal Adjustment Methods When Forecasting Intraday Volatility

Posted: 12 Apr 2001

See all articles by Martin Martens

Martin Martens

Erasmus University Rotterdam (EUR); Robeco Asset Management

Yuan-Chen Chang

National Chung Hsing University; Lancaster University

Stephen J. Taylor

Lancaster University - Department of Accounting and Finance

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Abstract

In this study we compare volatility forecasts over a thirty-minute horizon for the spot exchange rates of the Deutsche Mark and the Japanese Yen against the US dollar. Explicitly modeling the intraday seasonal pattern improves the out-of-sample forecasting performance. We find that a seasonal estimated from the log of squared returns improves upon the use of simple squared returns, and that the Flexible Fourier Form (FFF) is an efficient way of determining the seasonal. The two-step approach that first estimates the seasonal using the FFF and then the parameters of the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model for the deseasonalized returns performs only marginally worse than the computationally expensive periodic GARCH model that includes the FFF.

JEL Classification: C53, G15

Suggested Citation

Martens, Martin P.E. and Chang, Yuan-Chen and Taylor, Stephen J., A Comparison of Seasonal Adjustment Methods When Forecasting Intraday Volatility. Forthcoming in Journal of Financial Research. Available at SSRN: https://ssrn.com/abstract=263515

Martin P.E. Martens (Contact Author)

Erasmus University Rotterdam (EUR) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1253 (Phone)
+31 10 408 9162 (Fax)

Robeco Asset Management ( email )

Rotterdam, 3011 AG
Netherlands

Yuan-Chen Chang

National Chung Hsing University ( email )

402, No. 250 Kuo Kuang Road, Taiwan
Taichung, Taiwan
China

Lancaster University ( email )

Lancaster LA1 4YF
United Kingdom

Stephen J. Taylor

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+ 44 15 24 59 36 24 (Phone)
+ 44 15 24 84 73 21 (Fax)

HOME PAGE: http://www.lancs.ac.uk/staff/afasjt

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