Author(s)

Jing Li

Corresponding Author

Jing Li

ABSTRACT

In this paper, we forecast the realized volatility of the Shanghai Composite Index using the heterogeneous autoregressive model for realized volatility (HAR-RV) and its various extensions. Then we take a new variable named Chinese ETF volatility index into consideration, in order to compare the predictive ability between conventional models and the corresponding extended models. Our empirical results suggest that the new variable shows a significantly positive impact on the future volatility of Chinese stock market, and the extended models generate superior out-of-sample forecasting performance than the original models based on the model confidence set (MCS) test. Additionally, various sample periods, alternative volatility estimators, and alternative evaluation methods confirm the robustness of our results.

KEYWORDS

Chinese stock market, Realized volatility, HAR model, ETF Volatility Index, Forecasting