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Forecasting the Quantiles of Daily Equity Returns Using Realized Volatility: Evidence from the Czech Stock Market
Company: Czech Economic Review
Company Url: Click here to open
Year Of Publication: 2010
Month Of Publication: May
Resource Link: Click here to open
Pages: 295-315
Download Count: 0
View Count: 1132
Comment Num: 0
Language: English
Source: article
Who Can Read: Free
Date: 1-1-2013
Publisher: Administrator
Summary
In this study, we evaluate the quantile forecasts of the daily equity returns on three of the most liquid stocks traded on the Prague Stock Exchange. We follow the recent findings that consider the potential value of intraday information for volatility forecasting and, instead of proxying volatility using daily squared returns, we use both the intraday returns as well as their lower frequency aggregate (realized volatility) to forecast volatility and ultimately the quantiles of the distributions of future returns under different scenarios. We find that a simple autoregressive model for realized volatility together with the assumption of a normal distribution for expected returns results in VaR forecasts that are no worse than those based on other models (HAR, MIDAS) and/or other methods of computing the distribution of future returns. In fact, similar results obtain across the different forecast horizons and at both 2.5% and 5% VaR levels despite superior performance of HAR model in out-of-sample volatility forecasts.
(volume 4, number 3)
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Author(s)
Bubak, Vit Sign in to follow this author
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