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Forecasting daily return densities from intraday data: A multifractal approach
Affiliation:1. Koç University, Turkey;2. University of Southampton, United Kingdom;1. Department of Economics, University of Bologna, Italy;2. Research Department, Bank of Italy, Italy;1. FEUP, Faculdade Engenharia Universidade do Porto, Porto, Portugal;2. Electrical Engineering Department, University of Zaragoza, Zaragoza, Spain;3. Electrical Engineering Department, University of La Rioja, Logroño, Spain;1. School of Economics, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, 200433, China;2. Key Laboratory of Mathematical Economics (SUFE), Ministry of Education, Shanghai, 200433, China;3. Department of Economics, Boston University, 270 Bay State Rd., Boston MA 02215, United States;1. Faculty of Economic Sciences, Chair of Economic Policy and SME Research, University of Goettingen, Platz der Goettinger Sieben 3, 37073 Goettingen, Germany;2. Ipag Business School, 184 Boulevard Saint-Germain, 75006 Paris, France;3. Center for Risk and Insurance, Otto-Brenner-Straße 1, 30159 Hannover, Germany;4. Faculty of Business Administration, Ostfalia University of Applied Sciences, Siegfried-Ehlers-Straße 1, 38440 Wolfsburg, Germany;5. NORD/LB Norddeutsche Landesbank, Research/Economics, Friedrichswall 10, 30159 Hannover, Germany
Abstract:This paper proposes a new approach for estimating and forecasting the moments and probability density function of daily financial returns from intraday data. This is achieved through a new application of the distributional scaling laws for the class of multifractal processes. Density forecasts from the new multifractal approach are typically found to provide substantial improvements in predictive ability over existing forecasting methods for the EUR/USD exchange rate, and are also competitive with existing methods when forecasting the daily return density of the S&P500 and NASDAQ-100 equity index.
Keywords:Density forecasts  Volatility forecasting  Multifractal  Unifractal  Intraday  Finance
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