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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Forecasting the Realized Variance in the Presence of Intraday Periodicity
AU - Dumitru, Ana-Maria H.
AU - Hizmeri, Rodrigo
AU - Izzeldin, Marwan
PY - 2025/1/31
Y1 - 2025/1/31
N2 - 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 HAR mod l, HARP, where predictors are constructed from the periodicity-filtered data. We demonstrate empirically (using 30 stocks from various business sectors and the SPY for the period 2000–2020) and via Monte Carlo simulations that the HARP models produce significantly better forecasts across all forecasting horizons. We also show that adjusting for periodicity when estimating the variance risk premium improves return predictability.
AB - 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 HAR mod l, HARP, where predictors are constructed from the periodicity-filtered data. We demonstrate empirically (using 30 stocks from various business sectors and the SPY for the period 2000–2020) and via Monte Carlo simulations that the HARP models produce significantly better forecasts across all forecasting horizons. We also show that adjusting for periodicity when estimating the variance risk premium improves return predictability.
U2 - 10.1016/j.jbankfin.2024.107342
DO - 10.1016/j.jbankfin.2024.107342
M3 - Journal article
VL - 170
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
M1 - 107342
ER -