International Journal of Business and Economics Volume 5, No. 1 April​, 2006

Beating the Random Walk: Intraday Seasonality and Volatility in a Developing Stock Market

Kim-Leng Goh

Faculty of Economics and Administration, University of Malaya, Malaysia

Kim-Lian Kok

Taylor's Business School, Malaysia

Abstract

Historical prices information has not been exhaustively exploited in forecasting the 10-minute-ahead Composite Index of the Malaysian stock market. A simple model incorporating intraday seasonality can have lower forecast errors than a random walk. Improved accuracy is achieved when time-varying volatility is included in the time-of-day seasonal model for both in-sample and out-of-sample forecasts. The updating of parameter estimates of these volatility models at each new forecast origin to incorporate the latest available information leads to further improvement in forecast performance.

Keywords：calendar effects, forecast, ARCH models, random walk.

JEL Classifications：C53, G14.

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