Forecasting the U.S. stock volatility: An aligned jump index from G7 stock markets

Feng Ma, M.I.M. Wahab and Yaojie Zhang

Pacific-Basin Finance Journal, 2019, vol. 54, issue C, 132-146

Abstract: We propose new jump indexes that are aligned with the jump information on the G7 stock markets to predict the U.S. stock market volatility. We present several noteworthy findings. First, in-sample tests indicate that the impacts of the aligned jump indexes on one-step-ahead U.S. stock market volatility are significantly negative. Second, the aligned jump index based on the Partial Least Squares (PLS) approach remarkably exhibits a higher predictive power, showing that this new jump index can contain much more predictive information than jump itself or jump index based on the Principal Component Analysis (PCA). Third, the results are consistent across the direction-of-change test and a variety of robustness tests. Consequently, this research provides a new insight and constructs a powerful predictive variable for the U.S. stock market volatility forecasting.

Keywords: Volatility forecasting; G7 stock markets; Realized volatility; Jumps; Partial least squares (search for similar items in EconPapers)
JEL-codes: C52 C53 C58 G17 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (30)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X18305559
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:54:y:2019:i:c:p:132-146

DOI: 10.1016/j.pacfin.2019.02.006

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().