Do Jumps Matter for Volatility Forecasting? Evidence from Energy Markets

Prokopczuk, Marcel, Symeonidis, Lazaros and Wese Simen, Chardin ORCID: 0000-0003-4119-3024 (2016) Do Jumps Matter for Volatility Forecasting? Evidence from Energy Markets. Journal of Futures Markets, 36 (8). pp. 758-792.

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Official URL: https://onlinelibrary.wiley.com/doi/abs/10.1002/fu...

Abstract

This paper characterizes the dynamics of jumps and analyzes their importance for volatility forecasting. Using high‐frequency data on four prominent energy markets, we perform a model‐free decomposition of realized variance into its continuous and discontinuous components. We find strong evidence of jumps in energy markets between 2007 and 2012. We then investigate the importance of jumps for volatility forecasting. To this end, we estimate and analyze the predictive ability of several Heterogenous Autoregressive (HAR) models that explicitly capture the dynamics of jumps. Conducting extensive in‐sample and out‐of‐sample analyses, we establish that explicitly modeling jumps does not significantly improve forecast accuracy. Our results are broadly consistent across our four energy markets, forecasting horizons, and loss functions.

Item Type:	Article
Uncontrolled Keywords:	7 Affordable and Clean Energy
Depositing User:	Symplectic Admin
Date Deposited:	22 Aug 2019 10:12
Last Modified:	16 Mar 2024 07:31
DOI:	10.1002/fut.21759
Related URLs:	Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3052242