The Bias of Realized Volatility
Janis Becker and
Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät
Realized volatility underestimates the variance of daily stock index returns by an average of 14 percent. This is documented for a wide range of international stock indices, using the fact that the average of realized volatility and that of squared returns should be the same over longer time horizons. It is shown that the magnitude of this bias cannot be explained by market microstructure noise. Instead, it can be attributed to correlation between the continuous components of intraday returns and correlation between jumps and previous/subsequent continuous price movements.
Keywords: Return Volatility; Realized Volatility; Squared Returns (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm, nep-fmk, nep-mst and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:han:dpaper:dp-642
Access Statistics for this paper
More papers in Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät Contact information at EDIRC.
Bibliographic data for series maintained by Heidrich, Christian ().