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A Multiple Indicators Model For Volatility Using Intra-Daily Data

Robert Engle and Giampiero Gallo ()

Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

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.

Keywords: volatility modeling; volatility forecasting; GARCH; VIX; high-low range; realized volatility. (search for similar items in EconPapers)
JEL-codes: C22 C32 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ets and nep-fin
Date: 2003-07
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Related works:
Journal Article: A multiple indicators model for volatility using intra-daily data (2006) Downloads
Working Paper: A Multiple Indicators Model for Volatility Using Intra-Daily Data (2003) Downloads
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