A component Markov Regime-switching autoregressive conditional range model

Richard D F Harris, Murat Mazibas*

*Corresponding author for this work

Research output: Contribution to journalArticle (Academic Journal)peer-review

25 Downloads (Pure)


In this article, we develop one- and two-component Markov regime-switching conditional volatility models based on the intraday range and evaluate their performance in forecasting the daily volatility of the S&P 500 Index. We compare the performance of the models with that of several well-established return- and range-based volatility models, namely EWMA, GARCH, and FIGARCH models, the Markov regime-switching GARCH model, the hybrid EWMA model, and the CARR model. We evaluate the in-sample goodness of fit and out-of-sample forecast performance of the models using a comprehensive set of statistical and economic loss functions. To assess the statistical performance of the models, we use mean error metrics, directional predictive ability tests, forecast evaluation regressions, and pairwise and joint tests; and to appraise the economic performance of the models, we use value at risk coverage tests and risk management loss functions. We show that the proposed range-based Markov switching conditional volatility models produce more accurate out-of-sample forecasts, contain more information about true volatility, and exhibit similar or better performance when used for the estimation of value at risk. Our results are robust to the choice of volatility proxy, estimation sample size, out-of-sample evaluation period, and alternative error distributions.
Original languageEnglish
Pages (from-to)1-34
JournalBulletin of Economic Research
Early online date5 Oct 2021
Publication statusE-pub ahead of print - 5 Oct 2021

Bibliographical note

Publisher Copyright:
© 2021 Board of Trustees of the Bulletin of Economic Research and John Wiley & Sons Ltd.

Structured keywords

  • AF Financial Markets


  • factor model
  • intraday range
  • Markov regime-switching
  • Multiplicative error model


Dive into the research topics of 'A component Markov Regime-switching autoregressive conditional range model'. Together they form a unique fingerprint.

Cite this