Asymmetry and Long Memory in Volatility Modelling

Manabu Asai, Michael McAleer and Marcelo Medeiros ()

No 726, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: A wide variety of conditional and stochastic variance models has been used to estimate latent volatility (or risk). In this paper, we propose a new long memory asymmetric volatility model which captures more flexible asymmetric patterns as compared with existing models. We extend the new specification to realized volatility by taking account of measurement errors, and use the Efficient Importance Sampling technique to estimate the model. As an empirical example, we apply the new model to the realized volatility of Standard and Poor's 500 Composite Index to show that the new specification of asymmetry significantly improves the goodness of fit, and that the out-of-sample forecasts and Value-at-Risk (VaR) thresholds are satisfactory. Overall, the results of the out-of-sample forecasts show the adequacy of the new asymmetric and long memory volatility model for the period including the global financial crisis.

Keywords: Asymmetric volatility; long memory; realized volatility; measurement errors; efficient importance sampling (search for similar items in EconPapers)
Pages: 38pages
Date: 2010-10
New Economics Papers: this item is included in nep-ore and nep-rmg
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Downloads: (external link)
http://www.kier.kyoto-u.ac.jp/DP/DP726.pdf (application/pdf)

Related works:
Journal Article: Asymmetry and Long Memory in Volatility Modeling (2012)
Working Paper: Asymmetry and Long Memory in Volatility Modelling (2011)
Working Paper: Asymmetry and Long Memory in Volatility Modelling (2010)
Working Paper: Asymmetry and Long Memory in Volatility Modelling (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:726

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