Forecasting volatility and volume in the Tokyo Stock Market: Long memory, fractality and regime switching

Abstract

Abstract:We investigate the predictability of both volatility and volume for a large sample of Japanese stocks. The particular emphasis of this paper is on assessing the performance of long memory time series models in comparison to their short-memory counterparts. Since long memory models should have a particular advantage over long forecasting horizons, we consider predictions of up to 100 days ahead. In most respects, the long memory models (ARFIMA, FIGARCH and the recently introduced multifractal model) dominate over GARCH and ARMA models. However, while FIGARCH and ARFIMA also have quite a number of cases with dramatic failures of their forecasts, the multifractal model does not suffer from this shortcoming and its performance practically always improves upon the naïve forecast provided by historical volatility. As a somewhat surprising result, we also find that, for FIGARCH and ARFIMA models, pooled estimates (i.e. averages of parameter estimates from a sample of time series) give much better results than individually estimated models.

Modelling Long Memory Volatility in Agricultural Commodity Futures Returns

“…Several previous papers have observed and provided application of fractional integrated models in many fields, namely stock returns , Degiannakis (2004) and Niguez % (2007), Lux and Kaizoji (2007), Kang and Yoon (2007), Jefferis and Thupayagale (2008), Ruiz and Veiga (2008)); exchange rate (Baillie et al (1996), Davidson (2004), and Conrad and Lamla (2007)) and inflation rate (Baillie et al (2002)). However, in the literature to date, there have been few applications of the fractionally integrated GARCH class models to commodity futures markets.…”

Speculative behavior and the dynamics of interacting stock markets

“…autocorrelation coefficients for trading volume are positive and decay rather slowly (Bollerslev and Jubinsky 1999, Lobato and Velasco 2000and Lux and Kaizoji 2007. Moreover, stock market trading volume is positively correlated with volatility (Karpoff 1987or Gallant et al 1992.…”

What is beneath the surface? Option pricing with multifrequency latent states

“…3 However, 1 See, for example, Garcia et al (2009), Jones (2003), Li and Zhang (2013), and the literature cited therein. 2 See also Adrian and Rosenberg (2008), Bates (2000Bates ( , 2012, Campbell et al (2012), Chernov et al (2003), Christoffersen et al (2009), Christoffersen, Dorion, Jacobs andWang (2010), Egloff et al (2010), and Lux and Kaizoji (2007).…”