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Testing the Lag Structure of Assets' Realized Volatility Dynamics

Audrino, F and Camponovo, L (2015) Testing the Lag Structure of Assets' Realized Volatility Dynamics [Working Paper]

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A (conservative) test is constructed to investigate the optimal lag structure for forecasting 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.

Item Type: Working Paper
Subjects : Economics
Divisions : Surrey research (other units)
Authors :
Audrino, F
Date : 1 January 2015
DOI : 10.2139/ssrn.2549063
Depositing User : Symplectic Elements
Date Deposited : 16 May 2017 15:39
Last Modified : 23 Jan 2020 10:45

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