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On the use of high frequency measures of volatility in MIDAS regressions

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  • Andreou, Elena
Abstract
Many empirical studies link mixed data frequency variables such as low frequency macroeconomic or financial variables with high frequency financial indicators’ volatilities, especially within a predictive regression model context. The objective of this paper is threefold: First, we relate the standard Least Squares (LS) regression model with high frequency volatility predictors, with the corresponding Mixed Data Sampling Nonlinear LS (MIDAS-NLS) regression model (Ghysels et al., 2005, 2006), and evaluate the properties of the regression estimators of these models. We also consider alternative high frequency volatility measures as well as various continuous time models using their corresponding relevant higher-order moments to further analyze the properties of these estimators. Second, we derive the relative MSE efficiency of the slope estimator in the standard LS and MIDAS regressions, we provide conditions for relative efficiency and present the numerical results for different continuous time models. Third, we extend the analysis of the bias of the slope estimator in standard LS regressions with alternative realized measures of risk such as the Realized Covariance, Realized beta and the Realized Skewness when the true DGP is a MIDAS model.

Suggested Citation

  • Andreou, Elena, 2016. "On the use of high frequency measures of volatility in MIDAS regressions," Journal of Econometrics, Elsevier, vol. 193(2), pages 367-389.
    • Handle: RePEc:eee:econom:v:193:y:2016:i:2:p:367-389
    DOI: 10.1016/j.jeconom.2016.04.012
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    More about this item

    Keywords

    MIDAS regression model; High-frequency volatility estimators; Bias; Efficiency;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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