Publication details

Improving stock market volatility forecasts with complete subset linear and quantile HAR models

Authors

LYÓCSA Štefan STAŠEK Daniel

Year of publication 2021
Type Article in Periodical
Magazine / Source Expert Systems with Applications
MU Faculty or unit

Faculty of Economics and Administration

Citation
Web https://www.sciencedirect.com/journal/expert-systems-with-applications
Doi http://dx.doi.org/10.1016/j.eswa.2021.115416
Keywords Volatility density; Complete subset regression; Forecasting; Quantile forecasts; HAR model; Stock market
Attached files
Description Volatility forecasting plays an integral role in risk management, investments and security valuation for all assets with uncertain future payoffs. We enrich the literature by presenting computationally intensive variations of the heterogeneous autoregressive (HAR) volatility model: the complete subset linear/quantile regression HAR models, HAR-CSLR and HAR-CSQR. Predictions of 1-to 22-day-ahead volatility of four major market indices (NIKKEI 225, S&P 500, SSEC and STOXX 50) show that both models tend to outperform several benchmark HAR models. Forecasting accuracy improvements tend to stabilize for longer forecasting horizons: e.g., fiveday-ahead improvements range from 6.57% (SSEC) to 35.62% (NIKKEI 225) and from 3.99% (STOXX) to 9.54% for mean square error (MSE) and QLIKE loss functions. In terms of MSE, the HAR-CSQR model outperforms several standard benchmark HAR models across all market indices and forecast horizons.
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