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Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility

Dimos S. Kambouroudis, David G. McMillan, Katerina Tsakou Orcid Logo

Journal of Futures Markets, Volume: 41, Issue: 10, Pages: 1618 - 1639

Swansea University Author: Katerina Tsakou Orcid Logo

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DOI (Published version): 10.1002/fut.22241

Abstract

We forecast realized volatility extending the heterogeneous autoregressive model (HAR) to include implied volatility (IV), the leverage effect, overnight returns, and the volatility of realized volatility. We analyze 10 international stock indices finding that, although a simple HAR model augmented...

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Published in: Journal of Futures Markets
ISSN: 0270-7314 1096-9934
Published: Wiley 2021
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URI: https://cronfa.swan.ac.uk/Record/cronfa57115
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first_indexed 2021-06-14T10:42:47Z
last_indexed 2021-11-24T04:13:49Z
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spelling 2021-11-23T14:03:25.1270644 v2 57115 2021-06-14 Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility a4f50625221ac95136b3ff39782f2733 0000-0003-1913-858X Katerina Tsakou Katerina Tsakou true false 2021-06-14 BAF We forecast realized volatility extending the heterogeneous autoregressive model (HAR) to include implied volatility (IV), the leverage effect, overnight returns, and the volatility of realized volatility. We analyze 10 international stock indices finding that, although a simple HAR model augmented with IV (HAR-IV) is more accurate than any HAR model excluding it, all markets support further extensions of the HAR-IV model. More accurate forecasts are found using overnight returns in all markets except the UK, the volatility of realized volatility in the US, and the leverage effect in five markets. A value-at-risk exercise supports the economic significance of our findings. Journal Article Journal of Futures Markets 41 10 1618 1639 Wiley 0270-7314 1096-9934 HAR modeling and forecasting, implied volatility indices, leverage effect, overnight returns,realized volatility 1 10 2021 2021-10-01 10.1002/fut.22241 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University 2021-11-23T14:03:25.1270644 2021-06-14T11:40:59.9462034 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Dimos S. Kambouroudis 1 David G. McMillan 2 Katerina Tsakou 0000-0003-1913-858X 3 57115__20620__517e5fbd074641039bd407ab7828e055.pdf 57115.pdf 2021-08-13T15:03:25.5230745 Output 3178892 application/pdf Version of Record true © 2021 The Authors. This is an open access article under the terms of the Creative Commons Attribution License true eng http://creativecommons.org/licenses/by/4.0/
title Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility
spellingShingle Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility
Katerina Tsakou
title_short Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility
title_full Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility
title_fullStr Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility
title_full_unstemmed Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility
title_sort Forecasting realized volatility: The role of implied volatility, leverage effect, overnight returns, and volatility of realized volatility
author_id_str_mv a4f50625221ac95136b3ff39782f2733
author_id_fullname_str_mv a4f50625221ac95136b3ff39782f2733_***_Katerina Tsakou
author Katerina Tsakou
author2 Dimos S. Kambouroudis
David G. McMillan
Katerina Tsakou
format Journal article
container_title Journal of Futures Markets
container_volume 41
container_issue 10
container_start_page 1618
publishDate 2021
institution Swansea University
issn 0270-7314
1096-9934
doi_str_mv 10.1002/fut.22241
publisher Wiley
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
document_store_str 1
active_str 0
description We forecast realized volatility extending the heterogeneous autoregressive model (HAR) to include implied volatility (IV), the leverage effect, overnight returns, and the volatility of realized volatility. We analyze 10 international stock indices finding that, although a simple HAR model augmented with IV (HAR-IV) is more accurate than any HAR model excluding it, all markets support further extensions of the HAR-IV model. More accurate forecasts are found using overnight returns in all markets except the UK, the volatility of realized volatility in the US, and the leverage effect in five markets. A value-at-risk exercise supports the economic significance of our findings.
published_date 2021-10-01T04:12:37Z
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score 11.014067

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