Forecasting the Realized Variance in the Presence of Intraday Periodicity

41 Pages Posted: 11 Jun 2019

See all articles by Ana-Maria H. Dumitru

Ana-Maria H. Dumitru

University of Surrey, School of Economics

Rodrigo Hizmeri

Lancaster University

Marwan Izzeldin

Lancaster University Management School

Date Written: March 5, 2019

Abstract

This paper examines the impact of intraday periodicity on forecasting realized volatility using a heterogeneous autoregressive model (HAR) framework. We show that periodicity inflates the variance of the realized volatility and biases jump estimators. This combined effect adversely affects forecasting. To account for this, we propose a periodicity-adjusted model, HARP, where predictors are built from the periodicity-filtered data. We demonstrate empirically (using 30 stocks from various business sectors and the SPY for the period 2000--2016) and via Monte Carlo simulations that the HARP models produce significantly better forecasts, especially at the 1-day and 5-days ahead horizons.

Keywords: realized volatility, heterogeneous autoregressive models, intraday periodicity, forecast, realized jumps

JEL Classification: C14, C22, C58, G17

Suggested Citation

Dumitru, Ana-Maria H. and Hizmeri, Rodrigo and Izzeldin, Marwan, Forecasting the Realized Variance in the Presence of Intraday Periodicity (March 5, 2019). Available at SSRN: https://ssrn.com/abstract=3393464 or http://dx.doi.org/10.2139/ssrn.3393464

Ana-Maria H. Dumitru

University of Surrey, School of Economics ( email )

Guildford
Surrey GU2 7XH
United Kingdom

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/

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
37
Abstract Views
477
PlumX Metrics