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Intra-day volatility forecasts

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  • David McMillan
  • Raquel Quiroga Garcia

Abstract

This article seeks to examine the forecasting performance of competing models for intra-day volatility for the IBEX-35 index futures market. Whilst the use of intra-day is becoming common in examining daily forecasts through realized volatility, relatively little research examines the forecasting performance of models designed to capture intra-day volatility itself. The results presented here suggest first that the Hyperbolic Generalized Autoregressive Conditional Heteroscedasticity (HYGARCH) model provides the best forecast of intra-day volatility. Second, both this model and the Fractionally Integrated Exponential GARCH (FIEGARCH) model are particularly good at very high-frequency forecasts (less than 1 hour). Third, the Integrated-GARCH and FIGARCH models perform better at frequencies of 1 hour and lower. Fourth, the Component-GARCH model appears to provide a consistent performance across several frequencies. Fifth, the FIEGARCH model performs particularly well when weighting underpredictions of volatility higher than overpredictions. Overall, the results presented here are of interest to both academics, those engaged in microstructure modelling and practitioners interested in volatility and interval forecasting and dynamic hedging.

Suggested Citation

  • David McMillan & Raquel Quiroga Garcia, 2009. "Intra-day volatility forecasts," Applied Financial Economics, Taylor & Francis Journals, vol. 19(8), pages 611-623.
  • Handle: RePEc:taf:apfiec:v:19:y:2009:i:8:p:611-623
    DOI: 10.1080/09603100801982653
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    References listed on IDEAS

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    Cited by:

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    2. Tseng-Chan Tseng & Hung-Cheng Lai & Cha-Fei Lin, 2012. "The impact of overnight returns on realized volatility," Applied Financial Economics, Taylor & Francis Journals, vol. 22(5), pages 357-364, March.
    3. Ashish Kumar, 2015. "Impact of Currency Futures on Volatility in Exchange Rate," Paradigm, , vol. 19(1), pages 95-108, June.
    4. Prateek Sharma & Vipul _, 2015. "Forecasting stock index volatility with GARCH models: international evidence," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 32(4), pages 445-463, October.

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