Effects of structural changes on the prediction of downside volatility in futures markets

摘要

We develop a heterogeneous autoregressive model of downside volatility (HAR-DV) model with structural changes (HAR-DV-SC) model to investigate the effects of structural changes on predicting downside volatility. Then we employ HAR-DV and HAR-DV-SC models to forecast downside volatilities in S&P 500 index, crude oil, gold, copper, and soybean futures markets. The in-sample analysis shows that structural changes contain in-sample information for predicting downside volatility. The out-of-sample analysis indicates that the HAR-DV-SC model outperforms the HAR-DV model, suggesting that structural changes contain incremental out-of-sample information on future downside volatility. These results are robust and have important implications for risk management of stakeholders.