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Time‐Varying Parameter Realized Volatility Models
Author(s) -
Wang Yudong,
Pan Zhiyuan,
Wu Chongfeng
Publication year - 2017
Publication title -
journal of forecasting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.543
H-Index - 59
eISSN - 1099-131X
pISSN - 0277-6693
DOI - 10.1002/for.2454
Subject(s) - autoregressive model , volatility (finance) , statistic , econometrics , realized variance , nonparametric statistics , stochastic volatility , test statistic , computer science , mathematics , statistics , statistical hypothesis testing
In this paper, we introduce the functional coefficient to heterogeneous autoregressive realized volatility (HAR‐RV) models to make the parameters change over time. A nonparametric statistic is developed to perform a specification test. The simulation results show that our test displays reliable size and good power. Using the proposed test, we find a significant time variation property of coefficients to the HAR‐RV models. Time‐varying parameter (TVP) models can significantly outperform their constant‐coefficient counterparts for longer forecasting horizons. The predictive ability of TVP models can be improved by accounting for VIX information. Copyright © 2016 John Wiley & Sons, Ltd.