Continuous-Time Models, Realized Volatilities, and Testable Distributional Implications for Daily Stock Returns

Torben Andersen, Tim Bollerslev, Per Frederiksen and Morten Orregaard Nielsen

No 273649, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: We provide an empirical framework for assessing the distributional properties of daily speculative returns within the context of the continuous-time jump diffusion models traditionally used in asset pricing finance. Our approach builds directly on recently developed realized variation measures and non-parametric jump detection statistics constructed from high-frequency intraday data. A sequence of simple-to-implement moment-based tests involving various transformations of the daily returns speak directly to the importance of different distributional features, and may serve as useful diagnostic tools in the specifcation of empirically more realistic continuous-time asset pricing models. On applying the tests to the thirty individual stocks in the Dow Jones Industrial Average index, we find that it is important to allow for both time-varying diffusive volatility, jumps, and leverage effects to satisfactorily describe the daily stock price dynamics.

Keywords: Financial Economics; Research Methods/Statistical Methods (search for similar items in EconPapers)
Pages: 69
Date: 2008-07
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Continuous-time models, realized volatilities, and testable distributional implications for daily stock returns (2010)
Working Paper: Continuous-time Models, Realized Volatilities, And Testable Distributional Implications For Daily Stock Returns (2008)
Working Paper: Continuous-Time Models, Realized Volatilities, and Testable Distributional Implications for Daily Stock Returns (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:273649

DOI: 10.22004/ag.econ.273649

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