Market momentum amplifies market volatility risk: Evidence from China’s equity market
研究基于条件历史收益的动量指标对中国股市已实现波动率的预测能力，发现该指标能显著提升短期和中期波动率预测，且经济机制源于投资者交易行为。
We examine the role of a belief-based momentum indicator, measured by conditional past returns (CPR), in the realized volatility (RV) predictability of equity markets. Based on the week- and month-horizon CPR, we construct the HAR-CPR and HAR-LCPR models on the basis HAR-RV model. Here, the HAR-LCPR model additionally includes the daily leverage factor in the absence of daily CPR. In China, we find that: 1) week- and month-horizon CPR have significantly positive impacts on one-, five-, and 22-days-ahead RVs; 2) our out-of-sample results further indicate that the HAR-LCPR model performs best in forecasting one- and five-days-ahead RVs, whereas the HAR-CPR model is a more reliable forecasting model for 22-days-ahead volatility; 3) the performance also passes various robustness tests, including sub-period performance testing, alternative training rolling window, and alternative RV estimation. We show the economic mechanism underlying the predictive role of CPR from the perspective of investors’ trading activities.