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Volatility Forecasting: Downside Risk, Jumps and Leverage Effect
- Source :
- Econometrics; Volume 4; Issue 1; Pages: 8, Econometrics, Vol 4, Iss 1, p 8 (2016)
- Publication Year :
- 2016
- Publisher :
- MDPI AG, 2016.
-
Abstract
- We provide empirical evidence of volatility forecasting in relation to asymmetries present in the dynamics of both return and volatility processes. Using recently-developed methodologies to detect jumps from high frequency price data, we estimate the size of positive and negative jumps and propose a methodology to estimate the size of jumps in the quadratic variation. The leverage effect is separated into continuous and discontinuous effects, and past volatility is separated into “good” and “bad”, as well as into continuous and discontinuous risks. Using a long history of the S & P500 price index, we find that the continuous leverage effect lasts about one week, while the discontinuous leverage effect disappears after one day. “Good” and “bad” continuous risks both characterize the volatility persistence, while “bad” jump risk is much more informative than “good” jump risk in forecasting future volatility. The volatility forecasting model proposed is able to capture many empirical stylized facts while still remaining parsimonious in terms of the number of parameters to be estimated.
- Subjects :
- Economics and Econometrics
Leverage (finance)
downside risk
leverage effect
Downside risk
jel:C22
Implied volatility
Volatility risk premium
C51
Volatility swap
0502 economics and business
ddc:330
Economics
Forward volatility
Econometrics
C13
C58
050207 economics
C53
Empirical evidence
Stylized fact
050208 finance
Stochastic volatility
lcsh:HB71-74
jel:C53
Semivariance
Leverage effect
05 social sciences
jel:C51
lcsh:Economics as a science
jel:C13
high frequency data
realized volatility forecasting
jel:C58
Jump
Volatility smile
Volatility (finance)
C22
High frequency data, Realized volatility forecasting, Downside risk, Leverage effect
Subjects
Details
- ISSN :
- 22251146
- Volume :
- 4
- Database :
- OpenAIRE
- Journal :
- Econometrics
- Accession number :
- edsair.doi.dedup.....218c56ab84cd52b703c524c625797b79