HAR volatility modelling with heterogeneous leverage and jumps

We propose a dynamic model for financial market volatility with an heterogeneous structure for three components: continuous volatiilty, leverage and jumps. We find that each of the three components plays a significant role in volatility forecasting and neglecting one of them is detrimental to the forecasting performance. Importantly, we find remarkable forecasting power for the negative past returns at all the considered frequencies, which unveils a novel heterogeneous structure in the leverage effect. We also show, using simulation studies, that the presence of jumps is important for two distinct reasons: Firstly, explicitly modeling jumps has trimming effect on the dynamics of the persistent volatility component; secondly, they have a positive and significant impact on future volatility. JEL classification: C13; C22; C51; C53