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Realising the future: forecasting with high frequency based volatility (HEAVY) models

  • Neil Shephard

    ()

    (Oxford-Man Institute and Department of Economics, University of Oxford)

  • Kevin Sheppard

    ()

    (Department of Economics and Oxford-Man Institute, University of Oxford)

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 realized 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 allow us to estimate the entire predictive distribution of returns. We also provide an analysis of missing data in the context of these models.

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File URL: http://www.nuffield.ox.ac.uk/economics/papers/2009/w3/heavy080709.pdf
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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2009-W03.

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Length: 41 pages
Date of creation: 10 Jul 2009
Date of revision:
Handle: RePEc:nuf:econwp:0903
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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