Good Volatility, Bad Volatility: Signed Jumps and The Persistence of Volatility

Andrew Patton and Kevin Sheppard
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Kevin Sheppard: University of Oxford

The Review of Economics and Statistics, 2015, vol. 97, issue 3, 683-697

Abstract: Using estimators of the variation of positive and negative returns (realized semivariances) and high-frequency data for the S&P 500 Index and 105 individual stocks, this paper sheds new light on the predictability of equity price volatility. We show that future volatility is more strongly related to the volatility of past negative returns than to that of positive returns and that the impact of a price jump on volatility depends on the sign of the jump, with negative (positive) jumps leading to higher (lower) future volatility. We show that models exploiting these findings lead to significantly better out-of-sample forecast performance.

Keywords: volatility; trade; market; signed jumps (search for similar items in EconPapers)
JEL-codes: C58 M31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (383)

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