Does Information Help Intra-Day Volatility Forecasts?



McMillan D & Garcia RQ (2013) Does Information Help Intra-Day Volatility Forecasts?. Journal of Forecasting, 32 (1), pp. 1-9.

While much research related to forecasting return volatility does so in a univariate setting, this paper includes proxies for information flows to forecast intra-day volatility for the IBEX 35 futures market. The belief is that volume or the number of transactions conveys important information about the market that may be useful in forecasting. Our results suggest that augmenting a variety of GARCH-type models with these proxies lead to improved forecasts across a range of intra-day frequencies. Furthermore, our results present an interesting picture whereby the PARCH model generally performs well at the highest frequencies and shorter forecasting horizons, whereas the component model performs well at lower frequencies and longer forecast horizons. Both models attempt to capture long memory; the PARCH model allows for exponential decay in the autocorrelation function, while the component model captures trend volatility, which dominates over a longer horizon. These characteristics are likely to explain the success of each model.

high frequency; information; volatility forecast

Journal of Forecasting: Volume 32, Issue 1

Publication date31/01/2013
PublisherJohn Wiley and Sons

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Professor David McMillan
Professor David McMillan

Professor in Finance, Accounting & Finance