An empirical analysis of the volatility of the Japanese stock price index: a non-parametric approach

Katsuyuki Takahashi and Isao Shoji

Journal of Applied Statistics, 2011, vol. 38, issue 7, 1381-1394

Abstract: This paper presents an empirical analysis of stochastic features of volatility in the Japanese stock price index, or TOPIX, using high-frequency data sampled every 5 min. The process of TOPIX is modeled by a stochastic differential equation with the time-homogeneous drift and diffusion coefficients. To avoid the risk of misspecification for the volatility function, which is defined by the squared diffusion coefficient, the local polynomial model is applied to the data, and then produced the estimates of the volatility function together with their confidence intervals. The result of the estimation suggests that the volatility function shows similar patterns for one period, but drastically changes for another.

Date: 2011
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DOI: 10.1080/02664763.2010.505947

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