Forecasting the realized variance in the presence of intraday periodicity

Ana Maria H. Dumitru, Rodrigo Hizmeri and Marwan Izzeldin

Journal of Banking & Finance, 2025, vol. 170, issue C

Abstract: This paper examines the impact of intraday periodicity on forecasting realized volatility using a heterogeneous autoregressive model (HAR) framework. We show that periodicity inflates the variance of the realized volatility and biases jump estimators. This combined effect adversely affects forecasting. To account for this, we propose a periodicity-adjusted HAR model, HARP, where predictors are constructed from the periodicity-filtered data. We demonstrate empirically (using 30 stocks from various business sectors and the SPY for the period 2000–2020) and via Monte Carlo simulations that the HARP models produce significantly better forecasts across all forecasting horizons. We also show that adjusting for periodicity when estimating the variance risk premium improves return predictability.

Keywords: Realized volatility; Heterogeneous autoregressive models; Intraday periodicity; Forecast; Variance risk-premium (search for similar items in EconPapers)
JEL-codes: C14 C22 C58 G12 G17 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:170:y:2025:i:c:s0378426624002565

DOI: 10.1016/j.jbankfin.2024.107342

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