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Forecasting the realized variance in the presence of intraday periodicity

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  • Dumitru, Ana Maria H.
  • Hizmeri, Rodrigo
  • Izzeldin, Marwan

Abstract

This paper examines the impact of intraday periodicity on forecasting realized volatility using a heterogeneous autoregressive model (HAR) framework. We show that periodicity inflates the variance of the realized volatility and biases jump estimators. This combined effect adversely affects forecasting. To account for this, we propose a periodicity-adjusted HAR model, HARP, where predictors are constructed from the periodicity-filtered data. We demonstrate empirically (using 30 stocks from various business sectors and the SPY for the period 2000–2020) and via Monte Carlo simulations that the HARP models produce significantly better forecasts across all forecasting horizons. We also show that adjusting for periodicity when estimating the variance risk premium improves return predictability.

Suggested Citation

  • Dumitru, Ana Maria H. & Hizmeri, Rodrigo & Izzeldin, Marwan, 2025. "Forecasting the realized variance in the presence of intraday periodicity," Journal of Banking & Finance, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:jbfina:v:170:y:2025:i:c:s0378426624002565
    DOI: 10.1016/j.jbankfin.2024.107342
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    More about this item

    Keywords

    Realized volatility; Heterogeneous autoregressive models; Intraday periodicity; Forecast; Variance risk-premium;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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