Dynamics of financial returns densities: A functional approach applied to the Bovespa intraday index
- Citation:
- Horta, E., & Ziegelmann F. (2018). Dynamics of financial returns densities: A functional approach applied to the Bovespa intraday index. International Journal of Forecasting. 34(1), 75-88.
Abstract:
We model the stochastic evolution of the probability density functions (PDFs) of Ibovespa intraday returns over business days, in a functional time series framework. We find evidence that the dynamic structure of the PDFs reduces to a vector process lying in a two-dimensional space. Our main contributions are as follows. First, we provide further insights into the finite-dimensional decomposition of the curve process: it is shown that its evolution can be interpreted as a dynamic dispersion-symmetry shift. Second, we provide an application to realized volatility forecasting, with a forecasting ability that is comparable to those of HAR realized volatility models in the model confidence set framework.
