The exponential HEAVY model: an improved approach to volatility modeling and forecasting
Yongdeng Xu ()
Additional contact information
Yongdeng Xu: Cardiff University
Review of Quantitative Finance and Accounting, 2025, vol. 65, issue 2, No 8, 727-748
Abstract:
Abstract This paper proposes an Exponential HEAVY (EHEAVY) model, which specifies the dynamics of returns and realized measures of volatility in an exponential form. The model ensures positivity of volatility and allows for asymmetric effects without restrictions on parameters, hence is more flexible. A joint quasi-maximum likelihood estimation and closed-form multi-step ahead forecasting is derived. The EHEAVY model is applied to 31 assets from the Oxford-Man Institute’s realized library, and the empirical results demonstrate that return volatility dynamics are driven by the realized measure, while the asymmetric effect is captured by the return shock. The out-of-sample forecast results show that the EHEAVY model has superior forecasting performance compared the HEAVY, AHEAVY, and realized EGARCH models. The portfolio exercise further confirms the superior economic value of the EHEAVY model, as measured by the certain equivalent return and expected utility.
Keywords: HEAVY model; High-frequency data; Asymmetric effects; Realized variance; Portfolio (search for similar items in EconPapers)
JEL-codes: C32 C53 G11 G17 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:
Downloads: (external link)
http://link.springer.com/10.1007/s11156-024-01358-1 Abstract (text/html)
Access to full text is restricted to subscribers.
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:kap:rqfnac:v:65:y:2025:i:2:d:10.1007_s11156-024-01358-1
Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2
DOI: 10.1007/s11156-024-01358-1
Access Statistics for this article
Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee
More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().