Realising the future: forecasting with high-frequency-based volatility (HEAVY) models
Version of Record online: 27 JAN 2010
Copyright © 2010 John Wiley & Sons, Ltd.
Journal of Applied Econometrics
Volume 25, Issue 2, pages 197–231, March 2010
How to Cite
Shephard, N. and Sheppard, K. (2010), Realising the future: forecasting with high-frequency-based volatility (HEAVY) models. J. Appl. Econ., 25: 197–231. doi: 10.1002/jae.1158
- Issue online: 27 JAN 2010
- Version of Record online: 27 JAN 2010
- Manuscript Revised: 8 OCT 2009
- Manuscript Received: 10 JUL 2009
This paper studies in some detail a class of high-frequency-based volatility (HEAVY) models. These models are direct models of daily asset return volatility based on realised measures constructed from high-frequency data. Our analysis identifies that the models have momentum and mean reversion effects, and that they adjust quickly to structural breaks in the level of the volatility process. We study how to estimate the models and how they perform through the credit crunch, comparing their fit to more traditional GARCH models. We analyse a model-based bootstrap which allows us to estimate the entire predictive distribution of returns. We also provide an analysis of missing data in the context of these models. Copyright © 2010 John Wiley & Sons, Ltd.