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Forecasting Value-at-Risk Using High-Frequency Information
Grantham, Mayo, Van Otterloo and Company LLC, 2150 Shattuck Ave, Suite 900, Berkeley, CA 94704, USA
Department of Economics, University of California, Riverside, CA 92521-0427, USA
* Author to whom correspondence should be addressed.
Received: 7 March 2013 / Accepted: 22 April 2013 / Published: 21 June 2013
Abstract: in the prediction of quantiles of daily Standard&Poor’s 500 (S&P 500) returns we consider how to use high-frequency 5-minute data. We examine methods that incorporate the high frequency information either indirectly, through combining forecasts (using forecasts generated from returns sampled at different intraday interval), or directly, through combining high frequency information into one model. We consider subsample averaging, bootstrap averaging, forecast averaging methods for the indirect case, and factor models with principal component approach, for both direct and indirect cases. We show that in forecasting the daily S&P 500 index return quantile (Value-at-Risk or VaR is simply the negative of it), using high-frequency information is beneficial, often substantially and particularly so, in forecasting downside risk. Our empirical results show that the averaging methods (subsample averaging, bootstrap averaging, forecast averaging), which serve as different ways of forming the ensemble average from using high-frequency intraday information, provide an excellent forecasting performance compared to using just low-frequency daily information.
Keywords: VaR; Quantiles; Subsample averaging; Bootstrap averaging; Forecast combination; High-frequency data
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Cite This Article
MDPI and ACS Style
Huang, H.; Lee, T.-H. Forecasting Value-at-Risk Using High-Frequency Information. Econometrics 2013, 1, 127-140.
Huang H, Lee T-H. Forecasting Value-at-Risk Using High-Frequency Information. Econometrics. 2013; 1(1):127-140.
Huang, Huiyu; Lee, Tae-Hwy. 2013. "Forecasting Value-at-Risk Using High-Frequency Information." Econometrics 1, no. 1: 127-140.