Eduardo Rossi () and
Paolo Santucci de Magistris ()
Journal of Econometrics, 2017, vol. 198, issue 1, 122-145
Persistence and unpredictable large increments characterize the volatility of financial returns. We propose the Multiplicative Error Model with volatility jumps (MEM-J) to describe and predict the probability and the size of these extreme events. Under the MEM-J, the conditional density of the realized measure is a countably infinite mixture of Gamma and Kappa distributions, with closed form conditional moments. We derive stationarity conditions and the asymptotic theory for the maximum likelihood estimation. Estimates of the volatility jump component confirm that the probability of jumps dramatically increases during the financial crises. The MEM-J improves over other models with fat tails.
Keywords: Multiplicative Error Model; Volatility jumps; Bipower variation; Volatility-at-risk (search for similar items in EconPapers)
JEL-codes: C22 C58 G10 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:198:y:2017:i:1:p:122-145
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 Dana Niculescu ().