Forecasting Realized Volatility of Agricultural Commodities

48 Pages Posted: 7 Sep 2019 Last revised: 27 Oct 2019

See all articles by Stavros Antonios Degiannakis

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences

George Filis

Bournemouth University

Tony Klein

Queen's University Belfast - Queen's Management School

Thomas Walther

Utrecht University - School of Economics

Date Written: September 2, 2019

Abstract

We forecast the realized and median realized volatility of agricultural commodities using variants of the Heterogeneous AutoRegressive (HAR) model. We obtain tick-by-tick data for five widely traded agricultural commodities (Corn, Rough Rice, Soybeans, Sugar, and Wheat) from the CME/ICE. Real out-of-sample forecasts are produced for 1- up to 66-days ahead. Our in-sample analysis shows that the variants of the HAR model which decompose volatility measures into their continuous path and jump components and incorporate leverage effects offer better fitting in the predictive regressions. However, we convincingly demonstrate that such HAR extensions do not offer any superior predictive ability in the out-of-sample results, since none of these extensions produce significantly better forecasts compared to the simple HAR model. Our results remain robust even when we evaluate them in a Value-at-Risk framework. Thus, there is no benefit by adding more complexity, related to volatility decomposition or relative transformations of volatility, in the forecasting models.

Keywords: Agricultural Commodities, Realized Volatility, Median Realized Volatility, Heterogeneous Autoregressive model, Forecasting

JEL Classification: C22, C53, Q02, Q17

Suggested Citation

Degiannakis, Stavros Antonios and Filis, George and Klein, Tony and Walther, Thomas, Forecasting Realized Volatility of Agricultural Commodities (September 2, 2019). International Journal of Forecasting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3446748 or http://dx.doi.org/10.2139/ssrn.3446748

Stavros Antonios Degiannakis

Department of Economic and Regional Development, Panteion University of Political and Social Sciences ( email )

136 Sygrou
Athens
Greece

George Filis

Bournemouth University ( email )

Fern Barrow
Poole BH12 5BB, Dorset BH8 8EB
United Kingdom

Tony Klein (Contact Author)

Queen's University Belfast - Queen's Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

HOME PAGE: http://www.tony-klein.info

Thomas Walther

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

HOME PAGE: http://www.thomas-walther.info

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