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A Component Multiplicative Error Model for Realized Volatility Measures

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Nonparametric Statistics (ISNPS 2018)

Part of the book series: Springer Proceedings in Mathematics & Statistics ((PROMS,volume 339))

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Abstract

We propose a component Multiplicative Error Model (MEM) for modelling and forecasting realized volatility measures. In contrast to conventional MEMs, the proposed specification resorts to the use of a multiplicative component structure in order to parsimoniously parameterize the complex dependence structure of realized volatility measures. The long-run component is defined as a linear combination of MIDAS filters moving at different frequencies, while the short-run component is constrained to follow a unit mean GARCH recursion. This particular specification of the long-run component allows to reproduce very persistent oscillations of the conditional mean of the volatility process, in the spirit of Corsi’s Heterogeneous Autoregressive Model (HAR). The empirical performances of the proposed model are assessed by means of an application to the realized volatility of the S&P 500 index.

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Notes

  1. 1.

    The stochastic properties of the model have been derived by [21] to which the interested reader may refer for additional details.

  2. 2.

    Note that strict positivity, i.e. \(\alpha _j > 0\) for at least one \(j \in \{1,\ldots ,r\}\), is needed for identification if \(s > 0\).

  3. 3.

    The data have been downloaded from the OMI realized library available at: https://realized.oxford-man.ox.ac.uk.

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Authors and Affiliations

  1. University of Salerno, DISES, Via G. Paolo II, 132, 84084, Fisciano, SA, Italy

    Antonio Naimoli & Giuseppe Storti

Authors
  1. Antonio Naimoli
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  2. Giuseppe Storti
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Correspondence to Antonio Naimoli .

Editor information

Editors and Affiliations

  1. Department of Economics and Statistics, University of Salerno, Salerno, Italy

    Michele La Rocca

  2. Department of Methods and Models for Economics, Terrority and Finance, Sapienza University of Rome, Rome, Italy

    Brunero Liseo

  3. Department of Management and Engineering, University of Padua, Vicenza, Italy

    Luigi Salmaso

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Naimoli, A., Storti, G. (2020). A Component Multiplicative Error Model for Realized Volatility Measures. In: La Rocca, M., Liseo, B., Salmaso, L. (eds) Nonparametric Statistics. ISNPS 2018. Springer Proceedings in Mathematics & Statistics, vol 339. Springer, Cham. https://doi.org/10.1007/978-3-030-57306-5_35

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