Doubly Multiplicative Error Models with Long– and Short–run Components

30 Pages Posted: 29 Jun 2020

See all articles by Alessandra Amendola

Alessandra Amendola

University of Salerno

Vincenzo Candila

University of Salerno

Fabrizio Cipollini

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni)

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits; University of Bologna - Rimini Center for Economic Analysis (RCEA); Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti"

Date Written: June 3, 2020

Abstract

We suggest the Doubly Multiplicative Error class of models (DMEM) for modeling and forecasting realized volatility, which combines two components accommodating low–, respectively, high–frequency features in the data. We derive the theoretical properties of the Maximum Likelihood and Generalized Method of Moments estimators. Two such models are then proposed, the Component-MEM, which uses daily data for both components, and the MEM-MIDAS, which exploits the logic of MIxed–DAta Sampling (MIDAS). The empirical application involves the S&P 500, NASDAQ, FTSE 100 and Hang Seng indices: irrespective of the market, both DMEM’s outperform the HAR and other relevant GARCH–type models.

Keywords: Financial markets, Realized volatility, Multiplicative Error Model, MIDAS, GARCH, HAR

JEL Classification: C22, C51, C53, C58

Suggested Citation

Amendola, Alessandra and Candila, Vincenzo and Cipollini, Fabrizio and Gallo, Giampiero M., Doubly Multiplicative Error Models with Long– and Short–run Components (June 3, 2020). Available at SSRN: https://ssrn.com/abstract=3618157 or http://dx.doi.org/10.2139/ssrn.3618157

Alessandra Amendola

University of Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Vincenzo Candila

University of Salerno ( email )

Via Giovanni Paolo II, 132
Fisciano, Salerno 84084
Italy

Fabrizio Cipollini

Universita di Firenze, DiSIA (Dipartimento di Statistica, Informatica, Applicazioni) ( email )

Viale Morgagni, 59
Florence, Florence 50134
Italy
+39 055 2751592 (Phone)
+39 055 4223560 (Fax)

Giampiero M. Gallo (Contact Author)

Corte dei Conti - Italian Court of Audits ( email )

viale Mazzini
Roma, Roma 00195
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti" ( email )

Viale G.B. Morgagni, 59
Florence, 50134
Italy
0039 055 2751 591 (Phone)
0039 055 4223560 (Fax)

HOME PAGE: http://www.disia.unifi.it/gallog

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