Dynamics of financial returns densities: A functional approach applied to the Bovespa intraday index

Eduardo Horta and Flavio Ziegelmann

International Journal of Forecasting, 2018, vol. 34, issue 1, 75-88

Abstract: We model the stochastic evolution of the probability density functions (PDFs) of Ibovespa intraday returns over business days, in a functional time series framework. We find evidence that the dynamic structure of the PDFs reduces to a vector process lying in a two-dimensional space. Our main contributions are as follows. First, we provide further insights into the finite-dimensional decomposition of the curve process: it is shown that its evolution can be interpreted as a dynamic dispersion-symmetry shift. Second, we provide an application to realized volatility forecasting, with a forecasting ability that is comparable to those of HAR realized volatility models in the model confidence set framework.

Keywords: Stochastic processes; Autocovariance; Dimension reduction; High frequency data; Volatility forecasting (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfor:v:34:y:2018:i:1:p:75-88

DOI: 10.1016/j.ijforecast.2017.08.001

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