1. Forecasting Trading-Session Return Volatility in Taiwan Futures Market: A Periodic Regime Switching with Jump Approach.
- Author
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Lai, Yi-Hao, Wang, Yi-Chiuan, and Chang, Yu-Ching
- Subjects
VOLATILITY (Securities) ,MARKET volatility ,FUTURES market ,FORECASTING ,INVESTMENT risk ,INVESTMENT management ,JUMP processes - Abstract
This study develops a novel periodic regime-switching model (the PRS model) to improve the forecasting of stock market volatility by accounting for the information from non-trading and trading periods, including regular trading and after-hour trading. Empirical analysis of the Taiwan Futures Exchange (TAIFEX) demonstrates the significant improvements of the PRS model in both in-sample and out-of-sample periods. Our results also show that the introduction of after-hour trading sessions has provided valuable information for volatility forecasting in subsequent regular trading sessions, emphasizing the importance of considering diverse information flows across different trading and non-trading times. The PRS model effectively captures the dynamics of non-trading and trading sessions and the influence of unusual news arrivals and jumps on market volatility, contributing to investment and risk management strategies. [ABSTRACT FROM AUTHOR]
- Published
- 2024
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