Modelling the Impact of Overnight Surprises on Intra-daily Volatility
Giampiero Gallo ()
Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"
In this paper we evaluate the impact that stock returns recorded between market closing and opening the next business day have on intra-daily volatility. A simple test shows that the estimated volatility clustering of the intra-daily returns may be affected by a market opening surprise bias. An extension of the standard GARCH model is suggested here to include the effect of this surprise and is applied on a sample of largely traded US stocks. The performance of two specifications in which this effect is included is evaluated in an out-of-sample forecasting exercise relative to their standard counterparts.
Keywords: Volatility forecasting; univariate GARCH; market opening surprise bias. (search for similar items in EconPapers)
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Journal Article: Modelling the Impact of Overnight Surprises on Intra-Daily Volatility (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:fir:econom:wp2001_02
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