The Contribution of Intraday Jumps to Forecasting the Density of Returns

42 Pages Posted: 12 Jan 2017 Last revised: 4 Apr 2019

See all articles by Christophe Chorro

Christophe Chorro

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES); Unigestion

Benoît Sévi

University of Nantes

Date Written: April 3, 2019

Abstract

Recent contributions highlight the importance of intraday jumps in forecasting realized volatility at horizons up to one month. We extend the methodology developed in Maheu and McCurdy (2011) to exploit the information content of intraday data in forecasting the density of returns. Considering both intra-week periodicity and signed jumps, we estimate two variants of a bivariate model of returns and volatilities where the jump component is independently modeled. Our empirical results for four futures series (S&P 500, U.S. 10-year Treasury, USD/CAD exchange rate and WTI crude oil) highlight the importance of considering the continuous/jump decomposition of volatility for the purpose of density forecasting. Specifically, we show that models considering jumps apart from the continuous component consistently deliver better density forecasts for horizons up to one month and a half and, in two cases out of four, for horizons up to three months.

Keywords: Density Forecasting, Jumps, Realized Volatility, Bipower Variation, Median Realized Volatility, Leverage Effect

JEL Classification: C15, C32, C53, G1

Suggested Citation

Chorro, Christophe and Ielpo, Florian and Sévi, Benoît, The Contribution of Intraday Jumps to Forecasting the Density of Returns (April 3, 2019). Available at SSRN: https://ssrn.com/abstract=2897034 or http://dx.doi.org/10.2139/ssrn.2897034

Christophe Chorro

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Unigestion ( email )

8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland

Benoît Sévi (Contact Author)

University of Nantes ( email )

1, quai de Tourville BP
Nantes Cedex 1
Nantes, 44313
France

HOME PAGE: http://www.iemniae.univ-nantes.fr/sevi-b/0/fiche___annuaireksup/

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