The Contribution of Jump Signs and Activity to Forecasting Stock Price Volatility

47 Pages Posted: 1 May 2019

See all articles by Rodrigo Hizmeri

Rodrigo Hizmeri

Lancaster University

Marwan Izzeldin

Lancaster University Management School

Anthony Murphy

Federal Reserve Banks - Federal Reserve Bank of Dallas

Efthymios G. Tsionas

Lancaster University

Multiple version iconThere are 2 versions of this paper

Date Written: March 28, 2019

Abstract

We document the forecasting gains achieved by incorporating measures of signed, finite and infinite jumps in forecasting the volatility of equity prices, using high-frequency data from 2000 to 2016. We consider the SPY and 20 stocks that vary by sector, volume and degree of jump activity. We use extended HAR-RV models, and consider different frequencies (5, 60, and 300 seconds), forecast horizons (1, 5, 22, and 66 days) and the use of standard and robust-to-noise volatility and threshold bipower variation measures. Incorporating signed finite and infinite jumps generates significantly better real-time forecasts than the HAR-RV model, although no single extended model dominates. In general, standard volatility measures at the 300-second frequency generate the smallest real-time mean squared forecast errors. Finally, the forecasts from simple model averages generally outperform forecasts from the single best model.

Keywords: realized volatility, signed jumps, finite jumps, infinite jumps, volatility forecasts, noise-robust volatility, model averaging

JEL Classification: C22, C51, C53, C58

Suggested Citation

Hizmeri, Rodrigo and Izzeldin, Marwan and Murphy, Anthony and Tsionas, Efthymios G., The Contribution of Jump Signs and Activity to Forecasting Stock Price Volatility (March 28, 2019). Available at SSRN: https://ssrn.com/abstract=3361972 or http://dx.doi.org/10.2139/ssrn.3361972

Rodrigo Hizmeri (Contact Author)

Lancaster University ( email )

Economics Department,
LUMS,
Bailrigg Lancaster, LA1 4YX
United Kingdom

Marwan Izzeldin

Lancaster University Management School ( email )

Lancaster, LA1 4YX
United Kingdom
01524 594674 (Phone)

HOME PAGE: http://www.lums.lancs.ac.uk/profiles/marwan-izzeldin/

Anthony Murphy

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

Efthymios G. Tsionas

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

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