Overnight information flow and realized volatility forecasting
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This study compares various approaches for incorporating the overnight information flow for forecasting realized volatility of the Australian index ASX 200 and seven very liquid Australian shares from March 2007 to January 2014. The analysis shows that considering overnight information separately rather than adding it to the daily realized volatility estimates leads consistently to better out-of-sample results despite the higher number of involved parameters. A novel, very promising approach is to combine the assets' own overnight returns with realized volatility estimates of related assets from other markets for which intraday data is available while the Australian exchange is closed.
Finance Research Letters
© 2014 Elsevier. This is the author-manuscript version of this paper. Reproduced in accordance with the copyright policy of the publisher. Please refer to the journal's website for access to the definitive, published version.
Banking, Finance and Investment not elsewhere classified