EconPapers    
Economics at your fingertips  
 

A reduced form framework for modeling volatility of speculative prices based on realized variation measures

Torben Andersen (), Tim Bollerslev () and Xin Huang

Journal of Econometrics, 2011, vol. 160, issue 1, 176-189

Abstract: Building on realized variance and bipower variation measures constructed from high-frequency financial prices, we propose a simple reduced form framework for effectively incorporating intraday data into the modeling of daily return volatility. We decompose the total daily return variability into the continuous sample path variance, the variation arising from discontinuous jumps that occur during the trading day, as well as the overnight return variance. Our empirical results, based on long samples of high-frequency equity and bond futures returns, suggest that the dynamic dependencies in the daily continuous sample path variability are well described by an approximate long-memory HAR-GARCH model, while the overnight returns may be modeled by an augmented GARCH type structure. The dynamic dependencies in the non-parametrically identified significant jumps appear to be well described by the combination of an ACH model for the time-varying jump intensities coupled with a relatively simple log-linear structure for the jump sizes. Finally, we discuss how the resulting reduced form model structure for each of the three components may be used in the construction of out-of-sample forecasts for the total return volatility.

Keywords: Stochastic; volatility; Realized; variation; Bipower; variation; Jumps; Hazard; rates; Overnight; volatility (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (91) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304-4076(10)00071-0
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A Reduced Form Framework for Modeling Volatility of Speculative Prices based on Realized Variation Measures (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:160:y:2011:i:1:p:176-189

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2022-08-23
Handle: RePEc:eee:econom:v:160:y:2011:i:1:p:176-189