Dynamics of Financial Returns Densities: A Functional Approach Applied to the Bovespa Intraday Index - Prof.Flávio Ziegelmann (UFRGS)

Abstract: We model the stochastic evolution of probability density functions (pdf's) of IBOVESPA intraday returns over business days, in a
functional time series framework. We find evidence that the pdf's dynamic structure reduces to a vector process lying on a two-dimensional
space. Our main contributions are as follows. First, we provide furtherinsight on the finite-dimensional decomposition of the curve process: it is
shown that its evolution can be interpreted as a dynamic dispersionsymmetry shift. Second, we provide an application to realized volatility
forecasting, with a forecasting ability comparable to HAR Realized Volatility models in the Model Confidence Set framework.