Do Jumps Matter for Volatility Forecasting? Evidence from Energy Markets. Issue 8 (21st October 2015)

• Record Type: Journal Article
• Authors: Prokopczuk, Marcel; Symeonidis, Lazaros; Wese Simen, Chardin
• Is Part Of: Journal of futures markets. Volume 36:Issue 8(2016:Aug.)
• Page Start: 758
• Page End: 792
• Publication Date: 2015-10-21
• Subjects: Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.21759
• Languages: English
• ISSNs: 0270-7314

Abstract

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. © 2015 Wiley Periodicals, Inc. Jrl Fut Mark 36:758–792, 2016