Asymmetric Realized Volatility Risk

Arbeitspapier

In this paper we document that realized variation measures constructed from high-frequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Explicitly modeling this volatility risk is fundamental. We propose a dually asymmetric realized volatility model, which incorporates the fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 14-075/III

Classification and Topics

• Classification: Wirtschaft ; Financial Econometrics ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Realized volatility ; volatility of volatility ; volatility risk ; value-at-risk ; forecasting ; conditional heteroskedasticity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Allen, David E. ; McAleer, Michael ; Scharth, and Marcel
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/107789
• Last update: 10.03.2025, 11:41 AM CET