The Relationship between the Volatility of Returns and the Number of Jumps in Financial Markets

Álvaro Cartea () and Dimitrios Karyampas

Econometric Reviews, 2016, vol. 35, issue 6, 929-950

Abstract: We propose a methodology to employ high frequency financial data to obtain estimates of volatility of log-prices which are not affected by microstructure noise and Lévy jumps. We introduce the “number of jumps” as a variable to explain and predict volatility and show that the number of jumps in SPY prices is an important variable to explain the daily volatility of the SPY log-returns, has more explanatory power than other variables (e.g., high and low, open and close), and has a similar explanatory power to that of the VIX. Finally, the number of jumps is very useful to forecast volatility and contains information that is not impounded in the VIX.

Date: 2016
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Related works:
Working Paper: The Relationship Between the Volatility of Returns and the Number of Jumps in Financial Markets (2009)
Working Paper: The relationship between the volatility of returns and the number of jumps in financial markets (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:taf:emetrv:v:35:y:2016:i:6:p:929-950

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DOI: 10.1080/07474938.2014.976529

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