Arbeitspapier
Observation-driven Models for Realized Variances and Overnight Returns
We present a new model to decompose total daily return volatility into a filtered (high-frequency based) open-to-close volatility and a time-varying scaling factor. We use score-driven dynamics based on fat-tailed distributions to limit the impact of incidental large observations. Applying our new model to 100 stocks of the S&P 500 during the period 2001-2014 and evaluating (in-sample and out-of-sample) in terms of Value-at-Risk and Expected Shortfall, we find our model outperforms alternatives like the HEAVY model that uses close-to-close returns and realized variances, and models treating close-to-open en open-to-close returns as separate processes. Results also indicate that the ratio between total and open-to-close volatility changes substantially through time, especially for financial stocks.
- Language
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Englisch
- Bibliographic citation
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Series: Tinbergen Institute Discussion Paper ; No. TI 2019-052/IV
- Classification
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Wirtschaft
Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Financial Econometrics
- Subject
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overnight volatility
realized variance
F distribution
score-driven dynamics
- Event
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Geistige Schöpfung
- (who)
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Opschoor, Anne
Lucas, André
- Event
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Veröffentlichung
- (who)
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Tinbergen Institute
- (where)
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Amsterdam and Rotterdam
- (when)
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2019
- Handle
- Last update
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10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Opschoor, Anne
- Lucas, André
- Tinbergen Institute
Time of origin
- 2019
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