Volatility forecasting of strategically linked commodity ETFs: gold-silver. Issue 12 (1st December 2016)

• Record Type: Journal Article
• Authors: Lyócsa, Štefan; Molnár, Peter
• Is Part Of: Quantitative finance. Volume 16:Issue 12(2016)
• Page Start: 1809
• Page End: 1822
• Publication Date: 2016-12-01
• Subjects: Gold -- Silver -- HAR -- Forecasting -- Volatility spillovers; C53 -- Q02; Finance -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Investments -- Mathematics -- Periodicals; Economics -- Periodicals; Finances -- Modèles mathématiques -- Périodiques; 332.015118
• DOI: 10.1080/14697688.2016.1211799
• Languages: English
• ISSNs: 1469-7688

Abstract

Abstract : We apply heterogeneous autoregressive (HAR) models—including nine univariate, two multivariate and three combination models—to high-frequency data to predict the one-day forward volatilities of two strategically linked commodities, gold and silver. We provide evidence that it is difficult to beat the benchmark HAR model using univariate models and that, a much better strategy is to average the forecasts from many models. In addition, the forecasts are not improved by using volatilities from strategically linked commodities; thus, no volatility spillovers are detected. Interestingly, when the two strategically linked commodities are modelled together using the generalized HAR model, the forecasts are comparable to those of combination forecast models.