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

48 Pages Posted: 22 Apr 2019 Last revised: 29 Apr 2020

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

Mike G. Tsionas

Lancaster University

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-03-28

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, Mike G., The Contribution of Jump Signs and Activity to Forecasting Stock Price Volatility (2019-03-28). FRB of Dallas Working Paper No. 1902, Available at SSRN: https://ssrn.com/abstract=3375186 or http://dx.doi.org/10.24149/wp1902

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 )

Mike G. Tsionas

Lancaster University

Lancaster LA1 4YX
United Kingdom

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