The predictive value of temporally disaggregated volatility: evidence from index futures markets

Taylor, Nick James 2008. The predictive value of temporally disaggregated volatility: evidence from index futures markets. Journal of Forecasting 27 (8) , pp. 721-742. 10.1002/for.1098

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Abstract

This paper examines the benefits to forecasters of decomposing close-to-close return volatility into close-to-open (nighttime) and open-to-close (daytime) return volatility. Specifically, we consider whether close-to-close volatility forecasts based on the former type of (temporally aggregated) data are less accurate than corresponding forecasts based on the latter (temporally disaggregated) data. Results obtained from seven different US index futures markets reveal that significant increases in forecast accuracy are possible when using temporally disaggregated volatility data. This result is primarily driven by the fact that forecasts based on such data can be updated as more information becomes available (e.g., information flow from the preceding close-to-open/nighttime trading session). Finally, we demonstrate that the main findings of this paper are robust to the index futures market considered, the way in which return volatility is constructed, and the method used to assess forecast accuracy.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > H Social Sciences (General) H Social Sciences > HC Economic History and Conditions H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Uncontrolled Keywords:	temporal aggregation; volatility forecasts; index futures
Publisher:	Wiley InterScience
ISSN:	0277-6693
Last Modified:	25 Jun 2017 03:02
URI:	https://orca.cardiff.ac.uk/id/eprint/22894

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