Economics at your fingertips  

Threshold bipower variation and the impact of jumps on volatility forecasting

Fulvio Corsi (), Davide Pirino () and Roberto Renò

Post-Print from HAL

Abstract: This study reconsiders the role of jumps for volatility forecasting by showing that jumps have a positive and mostly significant impact on future volatility. This result becomes apparent once volatility is separated into its continuous and discontinuous component using estimators which are not only consistent, but also scarcely plagued by small-sample bias. To this purpose, we introduce the concept of threshold bipower variation, which is based on the joint use of bipower variation and threshold estimation. We show that its generalization (threshold multipower variation) admits a feasible central limit theorem in the presence of jumps and provides less biased estimates, with respect to the standard multipower variation, of the continuous quadratic variation in finite samples. We further provide a new test for jump detection which has substantially more power than tests based on multipower variation. Empirical analysis (on the S&P500 index, individual stocks and US bond yields) shows that the proposed techniques improve significantly the accuracy of volatility forecasts especially in periods following the occurrence of a jump.

Keywords: G1; C1; C22; C53; Volatility estimation; Jump detection; Volatility forecasting; Threshold estimation; Financial markets (search for similar items in EconPapers)
Date: 2010-10-15
Note: View the original document on HAL open archive server:
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (174) Track citations by RSS feed

Published in Econometrics, MDPI, 2010, 159 (2), pp.276. ⟨10.1016/j.jeconom.2010.07.008⟩

Downloads: (external link) (application/pdf)

Related works:
Journal Article: Threshold bipower variation and the impact of jumps on volatility forecasting (2010) Downloads
Working Paper: Threshold Bipower Variation and the Impact of Jumps on Volatility Forecasting (2010) Downloads
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:

DOI: 10.1016/j.jeconom.2010.07.008

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2021-03-28
Handle: RePEc:hal:journl:hal-00741630