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On forecasting daily stock volatility: the role of intraday information and market conditions

Fuertes, Ana-Maria and Izzeldin, Marwan and Kalotychou, Elena (2009) On forecasting daily stock volatility: the role of intraday information and market conditions. International Journal of Forecasting, 25 (2). p. 259. ISSN 0169-2070

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    Abstract

    Several recent studies advocate the use of nonparametric estimators of daily price vari- ability that exploit intraday information. This paper compares four such estimators, realised volatility, realised range, realised power variation and realised bipower variation, by examining their in-sample distributional properties and out-of-sample forecast ranking when the object of interest is the conventional conditional variance. The analysis is based on a 7-year sample of transaction prices for 14 NYSE stocks. The forecast race is conducted in a GARCH framework and relies on several loss functions. The realized range fares relatively well in the in-sample .t analysis, for instance, regarding the extent to which it brings normality in returns. However, overall the realised power variation provides the most accurate 1-day-ahead forecasts. Fore- cast combination of all four intraday measures produces the smallest forecast errors in about half of the sampled stocks. A market conditions analysis reveals that the additional use of intraday data on day t .. 1 to forecast volatility on day t is most advantageous when day t is a low volume or an up-market day. The results have implications for value-at-risk analysis.

    Item Type: Article
    Journal or Publication Title: International Journal of Forecasting
    Uncontrolled Keywords: Conditional variance ; Realised Volatility ; Nonparametric estimators ; Intraday prices ; Superior predictive ability
    Subjects: H Social Sciences > HB Economic Theory
    Departments: Lancaster University Management School > Economics
    ID Code: 48926
    Deposited By: ep_importer_pure
    Deposited On: 11 Jul 2011 22:22
    Refereed?: Yes
    Published?: Published
    Last Modified: 10 Oct 2014 08:57
    Identification Number:
    URI: http://eprints.lancs.ac.uk/id/eprint/48926

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