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Do Jumps Matter? Forecasting Multivariate Realized Volatility Allowing for Common Jumps

  • Yin Liao

    ()

  • Heather Anderson
  • Farshid Vahid

Realized volatility of stock returns is often decomposed into two distinct components that are attributed to continuous price variation and jumps. This paper proposes a tobit multivariate factor model for the jumps coupled with a standard multivariate factor model for the continuous sample path to jointly forecast volatility in three Chinese Mainland stocks. Out of sample forecast analysis shows that separate multivariate factor models for the two volatility processes outperform a single multivariate factor model of realized volatility, and that a single multivariate factor model of realized volatility outperforms univariate models.

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File URL: http://cbe.anu.edu.au/researchpapers/econ/wp520.pdf
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Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2010-520.

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Length: 45 Pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:acb:cbeeco:2010-520
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