Components of volatility and their empirical measures: a note

Dipankor Coondoo and Paramita Mukherjee

Applied Financial Economics, 2004, vol. 14, issue 18, 1313-1318

Abstract: A descriptive decomposition of the observed volatility of a variable into three components is proposed here. These components have been named the Strength, Duration and Persistence of volatility. This decomposition is unique and is such that measurement and analysis of these components will facilitate both a better understanding of the nature of volatility of a variable and, more importantly, a comparison of the patterns of volatility of two or more variables. The proposed methodology is illustrated here by applying it to the time series of daily observations on three variables, viz., stock return, inter-bank call money rate and foreign institutional investment, pertaining to India.

Date: 2004
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DOI: 10.1080/09603100412331313550

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