Time-Varying Risk Aversion and Realized Gold Volatility

Riza Demirer, Rangan Gupta and Christian Pierdzioch

No 201881, Working Papers from University of Pretoria, Department of Economics

Abstract: We study the incremental in- and out-of-sample predictive value of time-varying risk aversion for realized volatility of gold-price returns via extended heterogeneous autoregressive realized volatility (HAR-RV) models. Our findings suggest that time varying risk aversion possesses predictive value for gold volatility both in- and out-of-sample. The predictive power of risk aversion is robust to the inclusion of realized higher-moments, jumps, gold returns, leverage effect as well as the aggregate market volatility in the forecasting model. Interestingly, risk aversion is found to absorb in sample the predictive power of stock-market volatility at a short forecasting horizon, while out-of-sample results show that risk aversion adds to predictive value at a medium and long forecast horizon. Additional tests suggest that the short-run (long-run) out-of-sample predictive value of risk aversion is beneficial for investors who are more concerned about over-predicting (under-predicting) gold market volatility. Overall, our findings show that time-varying risk aversion captures information useful for predicting (bad, good) realized volatility not already contained in the other predictors, and allows more accurate out-of-sample forecasts to be computed at a medium and long forecast horizon.

Keywords: Gold-price returns; Realized volatility; Forecasting (search for similar items in EconPapers)
Pages: 34 pages
Date: 2018-12
New Economics Papers: this item is included in nep-ets, nep-for, nep-rmg and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Time-varying risk aversion and realized gold volatility (2019)
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:pre:wpaper:201881

Access Statistics for this paper

More papers in Working Papers from University of Pretoria, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Rangan Gupta ().