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Forecasting Realized Volatility with Linear and Nonlinear Models

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  • McAleer, M.J.
  • Medeiros, M.C.

Abstract

In this paper we consider a nonlinear model based on neural networks as well as linear models to forecast the daily volatility of the S&P 500 and FTSE 100 indexes. As a proxy for daily volatility, we consider a consistent and unbiased estimator of the integrated volatility that is computed from high frequency intra-day returns. We also consider a simple algorithm based on bagging (bootstrap aggregation) in order to specify the models analyzed in the paper.

Suggested Citation

  • McAleer, M.J. & Medeiros, M.C., 2009. "Forecasting Realized Volatility with Linear and Nonlinear Models," Econometric Institute Research Papers EI 2009-37, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:17303
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    More about this item

    Keywords

    bagging; financial econometrics; neural networks; nonlinear models; realized volatility; volatility forecasting;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • 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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