TY  - JOUR
AU  - Engle,Robert F.
AU  - Gallo,Giampiero M.
TI  - A Multiple Indicators Model for Volatility Using Intra-Daily Data
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10117
PY  - 2003
Y2  - November 2003
UR  - http://www.nber.org/papers/w10117
L1  - http://www.nber.org/papers/w10117.pdf
N1  - Author contact info:
Robert F. Engle, III
Department of Finance, Stern School of Business
New York University, Salomon Center
44 West 4th Street, Suite 9-160
New York, NY  10012-1126
Tel: 212/998-0710
Fax: 212/995-4220
E-Mail: rengle@stern.nyu.edu
AB  - Many ways exist to measure and model financial asset volatility. In principle, as the frequency of the data increases, the quality of forecasts should improve. Yet, there is no consensus about a true' or  best' measure of volatility. In this paper we propose to jointly consider absolute daily returns, daily high-low range and daily realized volatility to develop a forecasting model based on their conditional dynamics. As all are non-negative series, we develop a multiplicative error model that is consistent and asymptotically normal under a wide range of specifications for the error density function. The estimation results show significant interactions between the indicators. We also show that one-month-ahead forecasts match well (both in and out of sample) the market-based volatility measure provided by an average of implied volatilities of index options as measured by VIX.
ER  -