The Contribution of Jump Signs and Activity to Forecasting Stock Price Volatility

Ruijun Bu, Rodrigo Hizmeri, Marwan Izzeldin, Anthony Murphy and Mike Tsionas

No 202109, Working Papers from University of Liverpool, Department of Economics

Abstract: This paper proposes a novel approach to decompose realized jump measures by type of activity (infinite/finite) and by sign. It also provides noise-robust versions of the ABD jump test (Andersen et al., 2007b) and realized semivariance measures for use at high-frequency sampling intervals. The volatility forecasting exercise involves the use of different types of jumps, forecast horizons, sampling frequencies, calendar and transaction time-based sampling schemes, as well as standard and noise-robust volatility measures. We find that infinite (finite) jumps improve the forecasts at shorter (longer) horizons; but the contribution of signed jumps is limited. Noise-robust estimators, that identify jumps in the presence of microstructure noise, deliver substantial forecast improvements at higher sampling frequencies. However, standard volatility measures at the 300-second frequency generate the smallest MSPEs. Since no single model dominates across sampling frequency and forecast horizon, we show that model averaged volatility forecasts –using time-varying weights and models from the model confidence set– generally outperform forecasts from both the benchmark and single best extended HAR model.

Keywords: Realized volatility; Signed Jumps; Finite Jumps; Infinite Jumps; Volatility Forecasts; Noise-Robust Volatility; Model Averaging (search for similar items in EconPapers)
JEL-codes: C22 C51 C53 C58 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2021
New Economics Papers: this item is included in nep-ecm and nep-ore
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Downloads: (external link)
https://www.liverpool.ac.uk/media/livacuk/schoolof ... Price,Volatility.pdf First version, 2019 (application/pdf)

Related works:
Journal Article: The contribution of jump signs and activity to forecasting stock price volatility (2023)
Working Paper: The Contribution of Jump Signs and Activity to Forecasting Stock Price Volatility (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:liv:livedp:202109

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