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Runs tests for assessing volatility forecastability in financial time series |
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| Institution: | 1. Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi and Institute for Economic Forecasting, Romanian Academy, 22 Carol I Boulevard, Iasi 700505, Romania;2. Faculty of Economics and Business Administration, Babeş-Bolyai University of Cluj-Napoca, Teodor Mihali Street, Nr. 58-60, Cluj-Napoca 400591, Romania;3. KU Leuven and CEPR, University of Zürich, Swiss Finance Institute, Plattenstrasse 14, 8032 Zürich, Switzerland;4. Faculty of Economics and Business Administration, Alexandru Ioan Cuza University of Iasi, 22 Carol I Boulevard, Iasi 700505, Romania |
| Abstract: | In this work we refine a nonparametric methodology firstly applied in Christoffersen and Diebold Review of Economics and Statistics 82 (2000) 12] for assessing volatility forecastability in financial time series based on discretization and on the use of runs tests. Empirical results are provided for SP500 and MIB30 indexes that lead naturally to a discretized one-period Markov chain. The results are confirmed with other persistence measures and their robustness is studied via numerical simulation. |
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