Forecasting the volatility of Nikkei 225 futures

Abstract

For forecasting volatility of futures returns, the paper proposes an indirect method based on the relationship between futures and the underlying asset for the returns and time-varying volatility. For volatility forecasting, the paper considers the stochastic volatility model with asymmetry and long memory, using high frequency data for the AbstractFor forecasting volatility of futures returns, the paper proposes an indirect method based on the relationship between futures and the underlying asset for the returns and time-varying volatility. For volatility forecasting, the paper considers the stochastic volatility model with asymmetry and long memory, using high frequency data for the underlying asset. Empirical results for Nikkei 225 futures indicate that the adjusted R 2 supports the appropriateness of the indirect method, and that the new method based on stochastic volatility models with the asymmetry and long memory outperforms the forecasting model based on the direct method using the pseudo long time series.

Market Price of Trading Liquidity Risk and Market Depth

“…We first present two main reasons for choosing the Nikkei futures. First, Nikkei 225 index is a well known stock market index for the Japanese stock market (see, for example, Asai and Michael (2000)). According to the monthly reports compiled by the World Federation of Exchanges, the Japan Exchange Group (JPX) was the third largest stock exchange (after NYSE and Nasdaq) in the world 6 during our sample period from November 2013 to June 2017, about 3 years and 7 months.…”