EconPapers    
Economics at your fingertips  
 

Harnessing the decomposed realized measures for volatility forecasting: Evidence from the US stock market

Botao Lu, Feng Ma, Jiqian Wang, Hui Ding and M.I.M. Wahab

International Review of Economics & Finance, 2021, vol. 72, issue C, 672-689

Abstract: This study explores the predictive ability of three decomposed realized measures for the US stock market using the mixed data sampling (MIDAS) framework. From the in-sample analysis, we find that all the decomposed realized measures have a significant positive impact on future stock volatility. Moreover, the predictive model, including moderate and extreme volatility, outperforms the related competing models via out-of-sample analysis. We also investigate the predictive sources of moderate and extreme volatility by considering sub-sample and high and low volatility level, and find that the main ability of them is reflected in the low fluctuation period. Furthermore, using a portfolio exercise, we show that the decompositions of moderate and extreme volatility can substantially increase the economic value. Finally, we extend our empirical analysis considering different forecast horizons and non-linear model with regime-switching.

Keywords: Decomposed realized measures; Volatility forecasting; MIDAS model; The US stock market (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056020303099
Full text for ScienceDirect subscribers only

Related works:
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:eee:reveco:v:72:y:2021:i:c:p:672-689

DOI: 10.1016/j.iref.2020.12.023

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-01-04
Handle: RePEc:eee:reveco:v:72:y:2021:i:c:p:672-689