A Generalized Heterogeneous Autoregressive Model using Market Information

Quantitative Finance (Forthcoming)

55 Pages Posted: 18 Dec 2019 Last revised: 6 Dec 2022

See all articles by Rodrigo Hizmeri

Rodrigo Hizmeri

University of Liverpool - Management School (ULMS)

Marwan Izzeldin

Lancaster University Management School

Ingmar Nolte

Lancaster University - Department of Accounting and Finance

Vasileios Pappas

University of Kent, Kent Business School

Date Written: May 5, 2022

Abstract

This paper introduces a novel class of volatility forecasting models that incorporate market realized (co)variances and semi(co)variances within the framework of a heterogeneous autoregressive (HAR) model. Our empirical analysis shows statistically and economically significant forecasting gains. For our most parsimonious market-HAR specification, stock volatility forecasting is improved by 9.80% points. Using a mixed sampling frequency market-HAR variant with low (high) sampling frequency for the stock (market) improves forecasting by a further 6.90% points. Our paper also develops noise-robust estimators to facilitate the use of realized semi(co)variances at high sampling frequencies.

Keywords: Realized Volatility, Microstructure Noise, Pre-Averaged Estimators, Semi-variances, Semicovariances, Volatility Forecasting.

JEL Classification: C22, C51, C58, G11

Suggested Citation

Hizmeri, Rodrigo and Izzeldin, Marwan and Nolte, Ingmar and Pappas, Vasileios, A Generalized Heterogeneous Autoregressive Model using Market Information (May 5, 2022). Quantitative Finance (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3496804 or http://dx.doi.org/10.2139/ssrn.3496804

Rodrigo Hizmeri (Contact Author)

University of Liverpool - Management School (ULMS) ( email )

Chatham St.
Liverpool, L69 7ZH
United Kingdom

HOME PAGE: http://www.rodrigohizmeri.com

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/

Ingmar Nolte

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Vasileios Pappas

University of Kent, Kent Business School ( email )

Canterbury, Kent CT2 7PE
United Kingdom

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