Post by Sapphire Capital on Aug 7, 2008 23:21:58 GMT 4
Are There Structural Breaks in Realized Volatility?
John M. Maheu
University of Toronto - Department of Economics
Journal of Financial Econometrics, Vol. 6, Issue 3, pp. 326-360, 2008
Abstract:
Constructed from high-frequency data, realized volatility (RV) provides an accurate estimate of the unobserved volatility of financial markets. This paper uses a Bayesian approach to investigate the evidence for structural breaks in reduced form time-series models of RV. We focus on the popular heterogeneous autoregressive (HAR) models of the logarithm of realized volatility. Using Monte Carlo simulations we demonstrate that our estimation approach is effective in identifying and dating structural breaks. Applied to daily S, and P 500 data from 1993-2004, we find strong evidence of a structural break in early 1997. The main effect of the break is a reduction in the variance of log-volatility. The evidence of a break is robust to different models including a GARCH specification for the conditional variance of log(RV).
papers.ssrn.com/sol3/papers.cfm?abstract_id=1146711
John M. Maheu
University of Toronto - Department of Economics
Journal of Financial Econometrics, Vol. 6, Issue 3, pp. 326-360, 2008
Abstract:
Constructed from high-frequency data, realized volatility (RV) provides an accurate estimate of the unobserved volatility of financial markets. This paper uses a Bayesian approach to investigate the evidence for structural breaks in reduced form time-series models of RV. We focus on the popular heterogeneous autoregressive (HAR) models of the logarithm of realized volatility. Using Monte Carlo simulations we demonstrate that our estimation approach is effective in identifying and dating structural breaks. Applied to daily S, and P 500 data from 1993-2004, we find strong evidence of a structural break in early 1997. The main effect of the break is a reduction in the variance of log-volatility. The evidence of a break is robust to different models including a GARCH specification for the conditional variance of log(RV).
papers.ssrn.com/sol3/papers.cfm?abstract_id=1146711