Measuring volatility with the realized range

Martin Martens and Dick van Dijk

No EI 2006-10, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: Realized variance, being the summation of squared intra-day returns, has quickly gained popularity as a measure of daily volatility. Following Parkinson (1980) we replace each squared intra-day return by the high-low range for that period to create a novel and more efficient estimator called the realized range. In addition we suggest a bias-correction procedure to account for the effects of microstructure frictions based upon scaling the realized range with the average level of the daily range. Simulation experiments demonstrate that for plausible levels of non-trading and bid-ask bounce the realized range has a lower mean squared error than the realized variance, including variants thereof that are robust to microstructure noise. Empirical analysis of the S&P500 index-futures and the S&P100 constituents confirm the potential of the realized range.

Keywords: bias-correction; high-frequency data; high-low range; market microstructure noise; realized volatility (search for similar items in EconPapers)
JEL-codes: C14 C15 C53 (search for similar items in EconPapers)
Date: 2006-02-28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://repub.eur.nl/pub/7582/ei2006-10.pdf (application/pdf)

Related works:
Journal Article: Measuring volatility with the realized range (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:7582

Access Statistics for this paper

More papers in Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute Contact information at EDIRC.
Bibliographic data for series maintained by RePub ( this e-mail address is bad, please contact ).