Testing the lag structure of assets’ realized volatility dynamics

Francesco Audrino, Lorenzo Camponovo and Constantin Roth ()

No 1501, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: A (conservative) test is constructed to investigate the optimal lag structure for forecasting realized volatility dynamics. The testing procedure relies on the recent theoretical results that show the ability of the adaptive least absolute shrinkage and selection operator (adaptive lasso) to combine efficient parameter estimation, variable selection, and valid inference for time series processes. In an application to several constituents of the S&P 500 index it is shown that (i) the optimal significant lag structure is time-varying and subject to drastic regime shifts that seem to happen across assets simultaneously; (ii) in many cases the relevant information for prediction is included in the first 22 lags, corroborating previous results concerning the accuracy and the difficulty of outperforming out-of-sample the heterogeneous autoregressive (HAR) model; and (iii) some common features of the optimal lag structure can be identified across assets belonging to the same market segment or showing a similar beta with respect to the market index.

Keywords: Realized volatility; Adaptive lasso; HAR model; Test for false positives; Lag structure (search for similar items in EconPapers)
JEL-codes: C12 C58 C63 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2015-01
New Economics Papers: this item is included in nep-ecm, nep-ets, nep-for and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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