Do jumps help in forecasting the density of returns?

The estimation of the jump component in asset pricing has witnessed a considerably growing body of literature. Of particular interest is the decomposition of total volatility between its continuous and jump components. Recent contributions highlight the importance of the jump component in forecasting the volatility at different horizons. In this paper, we extend the methodology developed by Maheu and McCurdy (2011) to measure the information content of intraday data in forecasting the density of returns at horizons up to sixty days. We extract jumps as in Andersen, Bollerslev, Frederiksen and Nielsen (2010) to have a measure of the jumps in returns. Then, we estimate a bivariate model of returns and volatilities where the jump component is indepen- dently modeled. Our empirical results for S&P 500 futures, WTI crude oil futures, the USD/JPY exchange rate and the MacDonald’s stock confirm the importance of considering the continuous/jump decomposition for density forecasting.