Forecasting Realized Volatility of Agricultural Commodity Futures with Infinite Hidden Markov HAR Models

Jiawen Luo, Tony Klein, Qiang Ji and Chenghan Hou

No 2019/10, QBS Working Paper Series from Queen's University Belfast, Queen's Business School

Abstract: We construct a set of HAR models with three types of infinite Hidden Markov regime switching structures. Particularly, jumps, leverage effects, and speculation effects are taken into account in realized volatility modeling. We forecast five agricultural commodity futures (Corn, Cotton, Indica Rice, Palm oil and Soybean) based on high frequency data from Chinese futures markets and evaluate the forecast performances with both statistical and economic evaluation measures. The statistical evaluation results suggest that HAR models with infinite Hidden Markov regime switching structures have better precision compared the benchmark HAR models based on the MZ-R², MAFE, and MCS results. The economic evaluation results suggest that portfolios constructed with infinite Hidden Markov regime switching HARs achieve higher portfolio returns for risk averse investors compared to benchmark HAR model for short-term volatility forecasts.

Keywords: Agriculture commodity futures; Realized volatility forecasts; Infinite Hidden Markov switching process; HAR models (search for similar items in EconPapers)
JEL-codes: C52 G17 Q14 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:qmsrps:201910

DOI: 10.2139/ssrn.3435054

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