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Economic gains of realized volatility in the Brazilian stock market

Marcio Garcia (), Marcelo Medeiros () and Francisco Eduardo de Luna e Almeida Santos
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Francisco Eduardo de Luna e Almeida Santos: Department of Economics PUC-Rio

No 624, Textos para discussão from Department of Economics PUC-Rio (Brazil)

Abstract: A model of realized variance-covariance is proposed using a portfolio with the most liquid stockassets of Ibovespa. The purpose is to evaluate the economic gains associated with following avolatility timing strategy based on the model’s conditional forecasts. Comparing with traditionalvolatility methods, we find that economic gains associated with realized measures perform wellwhen estimation risk is controlled and increase proportionally to the target return. Whenexpected returns are bootstrapped, however, performance fees are not significant, which is anindication that economic gains of realized volatility are offset by estimation risk.

New Economics Papers: this item is included in nep-fmk
Date: 2014-05
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