The application of signed range to forecasting the volatility of financial

LIU Yi, QU Jianwen, DONG Xugao, ZHANG Lei

Systems Engineering - Theory & Practice ›› 2021, Vol. 41 ›› Issue (9) : 2256-2270.

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Systems Engineering - Theory & Practice ›› 2021, Vol. 41 ›› Issue (9) : 2256-2270. DOI: 10.12011/SETP2020-1181

The application of signed range to forecasting the volatility of financial

  • LIU Yi, QU Jianwen, DONG Xugao, ZHANG Lei
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Abstract

Due to the excellent performance of range in improving volatility forecast and the wide-spread use of information based on the sign of return in the capital market, this paper constructs the signed range by combining range and the sign of return and introduces it into four mainstream HAR models. The empirical results based on the 5-minute high-frequency trading data of the Shanghai Composite Index indicate that signed range has a significant "asymmetric" impact on future volatility in the short term, with negative (positive) signed range leading to significantly higher (lower) future volatility. The out-of-sample prediction results show that the introduction of singed range can significantly improve the model's predictive ability, and the results are robust. Last but not least, HAR-RSV-SR model and HAR-Q-SR model are the best models in short and medium and long horizons than others models discussed in this paper. The conclusion of this article has important reference value for the application of volatility in asset pricing and risk management.

Key words

volatility forecasting / HAR-RV model / signed range / MCS test

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LIU Yi , QU Jianwen , DONG Xugao , ZHANG Lei. The application of signed range to forecasting the volatility of financial. Systems Engineering - Theory & Practice, 2021, 41(9): 2256-2270 https://doi.org/10.12011/SETP2020-1181

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Funding

International Cooperation and Exchanges Projects of National Natural Science Foundation of China (71661137006); Hunan Social Science Foundation (16YBA078)
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