Abstract
Iron ore future has an extreme influence on global financial markets. Thus, we are supposed to consider the day-of-the-week effect, which is important to the volatility of iron ore future price, although less existing literature considers it. The day-of-the-week effect is added to the basic heterogeneous autoregressive (HAR) model so that a new type of heterogeneous autoregressive (HAR) model is established. The empirical results show that the new model has higher accuracy in forecasting the volatility of iron ore future price and the day-of-the-week effect contains much forecasting information. Moreover, the day-of-the-week effect has a positive influence on iron ore futures’ price volatility, and the influence is more significant in the short and medium-term. This paper considers the day-of-the-week effect and uses an improved HAR model to predict the volatility of iron ore future.
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