Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86255
Authors: 
Martens, Martin
van Dijk, Dick
de Pooter, Michiel
Year of Publication: 
2004
Series/Report no.: 
Tinbergen Institute Discussion Paper 04-067/4
Abstract: 
The sum of squared intraday returns provides an unbiased and almost error-free measure of ex-post volatility. In this paper we develop a nonlinear Autoregressive Fractionally Integrated Moving Average (ARFIMA) model for realized volatility, which accommodates level shifts, day-of-the-week effects, leverage effects and volatility level effects. Applying the model to realized volatilities of the S&P 500 stock index and three exchange rates produces forecasts that clearly improve upon the ones obtained from a linear ARFIMA model and from conventional time-series models based on daily returns, treating volatility as a latent variable.
Subjects: 
Realized volatility
high-frequency data
long memory
day-of-the-week effect
leverage effect
volatility forecasting
smooth transition
JEL: 
C22
C53
G15
Document Type: 
Working Paper

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