HAR-RV with Sector Variance
Sharon Lee
April 1, 2009
HAR-RV Model
• HAR-RV makes use of average realized variance over daily, weekly, and monthly periods.
• h=1 corresponds to daily periods, h=5 corresponds to weekly periods, h=22 corresponds to monthly periods
• These time horizons correspond to day-ahead, 5-day ahead, and month-ahead predictions of average realized variance.
Sectors
• Consumer Goods• Healthcare• Financial• Technology• Basic Materials• Industrials• Utilities• Conglomerates• Services
– Stocks with less than 2000 observations were removed
HAR-RV Models
• 1) Single stock on stock’s regressors
• 2) Single stock on stock’s regressors and its sector’s regressors
• 3) Single stock on stock’s regressors, sector’s regressors, and market’s regressors
Consumer Goods Sector
AVP AVON PRODUCTS INC
CL COLGATE PALMOLIVE
CPB CAMPBELL SOUP CO
F FORD MOTOR CO
HNZ HEINZ H J CO
IP INTL PAPER *not in downloads
KFT KRAFT FOODS INC
KO COCA COLA CO THE
MO ALTRIA GROUP INC
PEP PEPSICO INC
PG PROCTER GAMBLE CO
PM PHILIP MORRIS INTL *less than 2000 observations
SLE SARA LEE CP
XRX XEROX CP
Day Sector Week Sector Month Sector
PG (Consumer) 0.3184 0.3606 13% 0.4569 0.5870 28% 0.4858 0.5729 18%
Consumer F pf
Day 24.81991 0
Week 161.2798 0
Month 152.7373 0
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
PG (Consumer) 13% 25% 28% -10% 18% -3%
Consumer Goods Sector
Model Fits
HealthcareABT ABBOTT LABORATORIES
AMGN Amgen Inc.
BAX BAXTER INTL INC
BMY BRISTOL MYERS SQIBB
CI CIGNA CP *not in downloads
COV COVIDIEN LTD *less than 2000 observations
JNJ JOHNSON AND JOHNS DC
MDT MEDTRONIC INC
MRK MERCK CO INC
PFE PFIZER INC
UNH UNITEDHEALTH GROUP
WYE WYETH *less than 2000 observations
Healthcare
Day Sector Week Sector Month Sector
JNJ (Healthcare) 0.3807 0.5284 39%0.510
0 0.6482 27%0.470
6 0.5475 16%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
JNJ (Healthcare) 39% -14% 27% -18% 16% 0%
Health Care
Day 1046.898 0
Week 945.8228 0
Month 600.1527 0
Model Fits
FinancialAIG AMER INTL GROUP INC *not in downloads
ALL ALLSTATE CP
AXP AMER EXPRESS INC
BAC BK OF AMERICA CP
BK BANK OF NY MELLON CP
C CITIGROUP INC
COF CAPITAL ONE FINANCIA
GS GOLDMAN SACHS GRP
HIG HARTFORD FIN SVC *not in downloads
JPM JP MORGAN CHASE CO
MS MORGAN STANLEY *less than 2000 observations
NYX NYSE EURONEXT *less than 2000 observations
RF REGIONS FINANCIAL CP *less than 2000 observations
USB US BANCORP
WB WACHOVIA CP *not in downloads
Financial
Day Sector Week Sector Month Sector
JPM (Financial) 0.4595 0.5092 11%0.470
4 0.5325 13%0.503
9 0.5160 2%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
JPM (Financial) 11% -10% 13% -1% 2% 7%
Financial
Day 2960.375 0
Week 3000.406 0
Month 2809.872 0
Model Fits
TechnologyCSCO Cisco Systems, Inc. Technology
DELL Dell Inc. Technology
EMC E M C CP Technology
GOOG Google Inc. Technology *less than 2000
HPQ HEWLETT PACKARD CO Technology
IBM INTL BUSINESS MACH Technology
INTC Intel Corporation Technology
MSFT Microsoft Corporation Technology
ORCL Oracle Corporation Technology
QCOM QUALCOMM Incorporated Technology
S SPRINT NXTEL CP Technology *less than 2000
T AT&T INC. Technology
TXN TEXAS INSTRUMENTS Technology
TYC TYCO INTL LTD NEW Technology
VZ VERIZON COMMUN Technology
Technology
Day Sector Week Sector Month Sector
ORCL (Technology) 0.3184 0.4529 42%0.456
9 0.5287 16%0.485
8 0.5706 17%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
ORCL (Technology) 42% 7% 16% -14% 17% -1%
Technology
Day 160.5351 0
Week 159.7751 0
Month 207.6017 0
Model Fits
Basic Materials
AA ALCOA INC Basic Materials
BHI BAKER HUGHES INTL Basic Materials
COP CONOCOPHILLIPS Basic Materials
CVX CHEVRON CORP Basic Materials
DD DU PONT E I DE NEM Basic Materials
DOW DOW CHEMICAL Basic Materials
EP EL PASO CORPORATION Basic Materials
HAL HALLIBURTON CO Basic Materials
NOV NATL OILWELL VARCO Basic Materials
OXY OCCIDENTAL PET Basic Materials
SLB SCHLUMBERGER LTD Basic Materials
WMB WILLIAMS COS Basic Materials
XOM EXXON MOBIL CP Basic Materials
Basic Materials
Day Sector Week Sector Month Sector
AA (Basic Materials) 0.4967 0.5587 12%0.595
2 0.6735 13%0.525
4 0.5392 3%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
AA (Basic Materials) 12% -13% 13% -20% 3% 2%
Basic Materials
Day 8744.193 0
Week 8943.996 0
Month 6670.166 0
Model Fits
Conglomerates
GE GEN ELECTRIC CO Conglomerates
MMM 3M COMPANY Conglomerates
UTX UNITED TECH Conglomerates
Conglomerates
Day Sector Week Sector Month Sector
MMM (Conglomerates) 0.5341 0.5504 3%0.652
6 0.6723 3%0.563
3 0.6004 7%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
MMM (Conglomerates) 3% -17% 3% -21% 7% -6%
Conglomerates
Day 36.24122 0
Week 59.70226 0
Month 91.45653 0
Model Fits
Industrial
BA BOEING CO Industrial
CAT CATERPILLAR INC Industrial
GD GEN DYNAMICS CP Industrial
HON HONEYWELL INTL INC Industrial
RTN RAYTHEON CO (NEW) Industrial *less than 2000 observations
WY WEYERHAEUSER CO Industrial
Industrial
Day Sector Week Sector Month Sector
HON (Industrials) 0.3808 0.4452 17%0.513
7 0.5599 9%0.449
5 0.4874 8%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
HON (Industrials) 17% 0% 9% 0% 8% 0%
Industrials
Day 62.75272 0
Week 103.2008 0
Month 73.26694 0
Model Fits
ServicesAMZN Amazon.com Services
BNI BURLINGTN N SANTE FE Services
CBS CBS CORP CL B Services *not found
CMCSA Comcast Corporation Services
CVS CVS CAREMARK CP Services
DIS WALT DISNEY-DISNEY C Services
FDX FEDEX CORP Services
HD HOME DEPOT INC Services
MA MASTERCARD INC Services *less than 2000 observations
MCD MCDONALDS CP Services
NSC NORFOLK SO CP Services
TGT TARGET CP Services
TWX TIME WARNER INC Services *less than 2000 observations
UPS UNITED PARCEL SVC Services
WMT WAL MART STORES Services
Services
Day Sector Week Sector Month Sector
TGT (Services) 0.5655 0.5654 0%0.670
2 0.6711 0%0.608
2 0.6132 1%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
TGT (Services) 0% -20% 0% -21% 1% -5%
Services
Day 0.852992 0.999
Week 2.965395 2.74E-138
Month 10.57629 0
Model Fits
Utilities
AEP AMER ELECTRIC POW CO Utilities
AES AES CORPORATION Utilities *not found
ETR ENTERGY CP Utilities
EXC EXELON CORPORATION Utilities
SO SOUTHERN CO Utilities
Model Fits
Utilities
Day Sector Week Sector Month Sector
EXC (Utilities) 0.5015 0.5011 0% 0.628 0.6284 0%0.529
3 0.5336 1%
Day, Sect +MktWk, Sect +Mkt Mo, Sect +Mkt
EXC (Utilities) 0% -10% 0% -17% 1% 2%
Utilities
Day 0.386227 1
Week 1.678704 1.84E-31
Month 7.223725 0
Model Fits
Adjusted R-squared Comparison
Day Sector Week Sector Month Sector
PG (Consumer) 0.3184 0.3606 13% 0.4569 0.5870 28% 0.4858 0.5729 18%
JNJ (Healthcare) 0.3807 0.5284 39% 0.5100 0.6482 27% 0.4706 0.5475 16%
JPM (Financial) 0.4595 0.5092 11% 0.4704 0.5325 13% 0.5039 0.5160 2%
ORCL (Technology) 0.3184 0.4529 42% 0.4569 0.5287 16% 0.4858 0.5706 17%
AA (Basic Materials) 0.4967 0.5587 12% 0.5952 0.6735 13% 0.5254 0.5392 3%
MMM (Conglomerates) 0.5341 0.5504 3% 0.6526 0.6723 3% 0.5633 0.6004 7%
HON (Industrials) 0.3808 0.4452 17% 0.5137 0.5599 9% 0.4495 0.4874 8%
TGT (Services) 0.5655 0.5654 0% 0.6702 0.6711 0% 0.6082 0.6132 1%
EXC (Utilities) 0.5015 0.5011 0% 0.628 0.6284 0% 0.5293 0.5336 1%
F-Tests
Consumer F pf
Day 24.81991 0
Week 161.2798 0
Month 152.7373 0
Basic Materials
Day 8744.193 0
Week 8943.996 0
Month 6670.166 0
Conglomerates
Day 36.24122 0
Week 59.70226 0
Month 91.45653 0
Financial
Day 2960.375 0
Week 3000.406 0
Month 2809.872 0
Industrials
Day 62.75272 0
Week 103.2008 0
Month 73.26694 0
Services
Day 0.852992 0.999
Week 2.965395 2.74E-138
Month 10.57629 0
Utilities
Day 0.386227 1
Week 1.678704 1.84E-31
Month 7.223725 0
Health Care
Day 1046.898 0
Week 945.8228 0
Month 600.1527 0
Technology
Day 160.5351 0
Week 159.7751 0
Month 207.6017 0
Market Regressors Added
Day, Sect +Mkt Wk, Sect +Mkt Mo, Sect +Mkt
PG (Consumer) 13% 25% 28% -10% 18% -3%
JNJ (Healthcare) 39% -14% 27% -18% 16% 0%
JPM (Financial) 11% -10% 13% -1% 2% 7%
ORCL (Technology) 42% 7% 16% -14% 17% -1%
AA (Basic Materials) 12% -13% 13% -20% 3% 2%
MMM (Conglomerates) 3% -17% 3% -21% 7% -6%
HON (Industrials) 17% 0% 9% 0% 8% 0%
TGT (Services) 0% -20% 0% -21% 1% -5%
EXC (Utilities) 0% -10% 0% -17% 1% 2%
next
• Explanations for market variables
• R-squared patterns among sectors
• Incorporate risk factors
• Further analysis