Testing the lag structure of assets' realized volatility dynamics
Journal
Quantitative Finance and Economics (QFE)
ISSN-Digital
2573-0134
Type
journal article
Date Issued
2017-12-13
Author(s)
Research Team
M&S
Abstract
A (conservative) test is applied to investigate the optimal lag structure for modeling realized volatility dynamics. The testing
procedure relies on the recent theoretical results that show the ability of the adaptive least absolute shrinkage and selection operator (adaptive lasso) to combine efficient parameter estimation, variable selection, and valid inference for time series processes.
In an application to several constituents of the S&P 500 index it is shown that (i) the optimal significant lag structure is time-varying and subject to drastic regime shifts that seem to happen across assets simultaneously; (ii) in many cases the relevant information for prediction is included in the first 22 lags, corroborating previous results concerning the accuracy and the difficulty of outperforming out-of-sample the heterogeneous autoregressive (HAR) model; and (iii) some common features of the optimal lag structure can
be identified across assets belonging to the same market segment or showing a similar beta with respect to the market index.
procedure relies on the recent theoretical results that show the ability of the adaptive least absolute shrinkage and selection operator (adaptive lasso) to combine efficient parameter estimation, variable selection, and valid inference for time series processes.
In an application to several constituents of the S&P 500 index it is shown that (i) the optimal significant lag structure is time-varying and subject to drastic regime shifts that seem to happen across assets simultaneously; (ii) in many cases the relevant information for prediction is included in the first 22 lags, corroborating previous results concerning the accuracy and the difficulty of outperforming out-of-sample the heterogeneous autoregressive (HAR) model; and (iii) some common features of the optimal lag structure can
be identified across assets belonging to the same market segment or showing a similar beta with respect to the market index.
Language
English
Keywords
Realized volatility
Adaptive lasso
HAR model
Test for false positives
Lag structure
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Quantitative Economic Methods
Publisher
AIMS Press
Volume
1
Number
4
Start page
363
End page
387
Official URL
Contact Email Address
francesco.audrino@unisg.ch
Eprints ID
252324