Abstract:

Much of the current research relating to forecasting the behaviour of financial markets only consider returns in their models and forgets that adage 'it is volume that moves the market'. In this paper, we analyse the importance of volume, as a proxy of the information arrival, when forecasting the intraday volatility of the IBEX 35 index future. In forecasting intraday volatility, we use a selection of models, including symmetric, asymmetric and long-memory component structures in their response to information arrival. Results suggest that at high frequencies the inclusion of a proxy for information flow improves forecasting performance, while this is less true at the daily horizon. Nonetheless, asymmetric models are supported at all frequencies.