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

Listed author(s):
  • Yin Liao
  • Heather M. 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://www.buseco.monash.edu.au/ebs/pubs/wpapers/2010/wp11-10.pdf
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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 11/10.

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Length: 44 pages
Date of creation: May 2010
Handle: RePEc:msh:ebswps:2010-11
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