Trading and non-trading period realized market volatility: Does it matter for forecasting the volatility of US stocks?

Kód výsledku v IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216224%3A14560%2F20%3A00114078" target="_blank" >RIV/00216224:14560/20:00114078 - isvavai.cz</a>

Výsledek na webu

<a href="https://www.sciencedirect.com/science/article/pii/S0169207019302250" target="_blank" >https://www.sciencedirect.com/science/article/pii/S0169207019302250</a>

DOI - Digital Object Identifier

<a href="http://dx.doi.org/10.1016/j.ijforecast.2019.08.002" target="_blank" >10.1016/j.ijforecast.2019.08.002</a>

Jazyk výsledku

angličtina

Název v původním jazyce

Trading and non-trading period realized market volatility: Does it matter for forecasting the volatility of US stocks?

Popis výsledku v původním jazyce

We study the potential merits of using trading and non-trading period market volatilities to model and forecast the stock volatility over the next one to 22 days. We demonstrate the role of overnight volatility information by estimating heterogeneous autoregressive (HAR) model specifications with and without a trading period market risk factor using ten years of high-frequency data for the 431 constituents of the S&amp;P 500 index. The stocks’ own overnight squared returns perform poorly across stocks and forecast horizons, as well as in the asset allocation exercise. In contrast, we find overwhelming evidence that the market-level volatility, proxied by S&amp;P Mini futures, matters significantly for improving the model fit and volatility forecasting accuracy. The greatest model fit and forecast improvements are found for short-term forecast horizons of up to five trading days, and for the non-trading period market-level volatility. The documented increase in forecast accuracy is found to be associated with the stocks’ sensitivity to the market risk factor. Finally, we show that both the trading and non-trading period market realized volatilities are relevant in an asset allocation context, as they increase the average returns, Sharpe ratios and certainty equivalent returns of a mean–variance investor.

Název v anglickém jazyce

Trading and non-trading period realized market volatility: Does it matter for forecasting the volatility of US stocks?

Popis výsledku anglicky

We study the potential merits of using trading and non-trading period market volatilities to model and forecast the stock volatility over the next one to 22 days. We demonstrate the role of overnight volatility information by estimating heterogeneous autoregressive (HAR) model specifications with and without a trading period market risk factor using ten years of high-frequency data for the 431 constituents of the S&amp;P 500 index. The stocks’ own overnight squared returns perform poorly across stocks and forecast horizons, as well as in the asset allocation exercise. In contrast, we find overwhelming evidence that the market-level volatility, proxied by S&amp;P Mini futures, matters significantly for improving the model fit and volatility forecasting accuracy. The greatest model fit and forecast improvements are found for short-term forecast horizons of up to five trading days, and for the non-trading period market-level volatility. The documented increase in forecast accuracy is found to be associated with the stocks’ sensitivity to the market risk factor. Finally, we show that both the trading and non-trading period market realized volatilities are relevant in an asset allocation context, as they increase the average returns, Sharpe ratios and certainty equivalent returns of a mean–variance investor.

Druh

J_imp - Článek v periodiku v databázi Web of Science

CEP obor

—

OECD FORD obor

50206 - Finance

Projekt

<a href="/cs/project/GA18-05829S" target="_blank" >GA18-05829S: Predikce volatility na rozvijících se finančních trzích</a><br>

Návaznosti

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Rok uplatnění

2020

Kód důvěrnosti údajů

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Název periodika

International Journal of Forecasting

ISSN

0169-2070

e-ISSN

1872-8200

Svazek periodika

36

Číslo periodika v rámci svazku

2

Stát vydavatele periodika

US - Spojené státy americké

Počet stran výsledku

18

Strana od-do

628-645

Kód UT WoS článku

000527898100025

EID výsledku v databázi Scopus

2-s2.0-85076251581