Forecasting Stock Index Realized Volatility with an Asymmetric HAR-FIGARCH Model: The Case of S&P 500 and DJI Stock Indices

38 Pages Posted: 19 Dec 2009 Last revised: 31 Jan 2010

See all articles by Dimitrios P. Louzis

Dimitrios P. Louzis

Bank of Greece; Athens University of Economics and Business

Spyros Xanthopoulos-Sisinis

Athens University of Economics and Business - Department of Management Science and Technology

Apostolos N. Refenes

Athens University of Economics and Business - Financial Engineering Research Centre

Date Written: February 1, 2010

Abstract

The approximate long memory Heterogeneous Autoregressive (HAR) model proposed by Corsi is extended in order to account for leverage effects in the realized volatility process and the long memory of the conditional variance of the HAR residuals. The proposed model is estimated using ten years of S&P 500 and DJIA indices intraday data, revealing a heterogeneous component structure in asymmetric effects and a statistically significant long memory property in the “volatility of realized volatility”. Compared with established HAR and ARFIMA realized volatility models, the proposed model exhibits superior in-sample fitting, as well as out-of-sample day-ahead realized volatility forecasting performance. On a day-ahead Value at Risk (VaR) application, the proposed model outperforms all of its competitors when the opportunity cost of the reserved capital is taken into account, satisfying also Christoffersen’s conditional coverage test criteria for the DJIA index.

Keywords: Volatility Forecasting, Long Memory Models, High Frequency Data, HAR, Leverage Effects

JEL Classification: C13, C22, C51, C53

Suggested Citation

Louzis, Dimitrios P. and Xanthopoulos-Sisinis, Spyros and Refenes, Apostolos N., Forecasting Stock Index Realized Volatility with an Asymmetric HAR-FIGARCH Model: The Case of S&P 500 and DJI Stock Indices (February 1, 2010). Available at SSRN: https://ssrn.com/abstract=1524861 or http://dx.doi.org/10.2139/ssrn.1524861

Dimitrios P. Louzis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

Athens University of Economics and Business ( email )

47A Evelpidon
Athens, 11362
Greece

Spyros Xanthopoulos-Sisinis

Athens University of Economics and Business - Department of Management Science and Technology ( email )

Athens GR-11362
Greece

Apostolos N. Refenes

Athens University of Economics and Business - Financial Engineering Research Centre ( email )

Department of Management Sciences and Technology
47A Evelpidon & 33 Lefkados
GR-10434 Athens
Greece

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