A note on investor happiness and the predictability of realized volatility of gold

Abstract

We apply the heterogeneous autoregressive realized volatility (HAR-RV) model to examine the importance of investor happiness in predicting the daily realized volatility of gold returns. We estimate daily realized volatility by employing intraday data providing both in-sample and out-of-sample predictions. Our in-sample results reveal that realized volatility is negatively linked to investor happiness. Moreover, our out-of-sample results show that extending the HAR-RV model to include investor happiness significantly improves the accuracy of forecasts of realized volatility at short- and medium-run forecast horizons.