A Multiple Indicators Model for Volatility Using Intra-Daily Data

Robert F. Engle and Giampiero M. Gallo ()

No 10117, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Many ways exist to measure and model financial asset volatility. In principle, as the frequency of the data increases, the quality of forecasts should improve. Yet, there is no consensus about a true' or best' measure of volatility. In this paper we propose to jointly consider absolute daily returns, daily high-low range and daily realized volatility to develop a forecasting model based on their conditional dynamics. As all are non-negative series, we develop a multiplicative error model that is consistent and asymptotically normal under a wide range of specifications for the error density function. The estimation results show significant interactions between the indicators. We also show that one-month-ahead forecasts match well (both in and out of sample) the market-based volatility measure provided by an average of implied volatilities of index options as measured by VIX.

JEL-codes: C1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-rmg
Date: 2003-11
Note: AP
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w10117.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
Working Paper: A Multiple Indicators Model For Volatility Using Intra-Daily Data (2003)
Journal Article: A multiple indicators model for volatility using intra-daily data (2006)
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: http://EconPapers.repec.org/RePEc:nbr:nberwo:10117

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10117
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().