Time‐Varying Parameter Realized Volatility Models |
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| Authors: | Yudong Wang Zhiyuan Pan Chongfeng Wu |
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| Affiliation: | 1. School of Economics and Management, Nanjing University of Science and Technology, China;2. Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, Chengdu, Sichuan, China;3. Collaborative Innovation Center of Financial Security, Chengdu, Sichuan, China;4. Antai College of Economics and Management, Shanghai Jiao Tong University, China |
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| Abstract: | 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. |
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| Keywords: | realized volatility time‐varying parameter heterogeneous autoregressive realized volatility model specification test forecasting |
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