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The economic value of volatility timing using a range-based volatility model

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  • Chou, Ray Yeutien
  • Liu, Nathan

Abstract

There is growing interest in utilizing the range data of asset prices to study the role of volatility in financial markets. In this paper, a new range-based volatility model was used to examine the economic value of volatility timing in a mean-variance framework. We compared its performance with a return-based dynamic volatility model in both in-sample and out-of-sample volatility timing strategies. For a risk-averse investor, it was shown that the predictable ability captured by the dynamic volatility models is economically significant, and that a range-based volatility model performs better than a return-based one.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 11 (November)
Pages: 2288-2301

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:11:p:2288-2301

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Asset allocation CARR DCC Economic value Range Volatility timing;

References

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Cited by:
  1. Miao, Daniel Wei-Chung & Wu, Chun-Chou & Su, Yi-Kai, 2013. "Regime-switching in volatility and correlation structure using range-based models with Markov-switching," Economic Modelling, Elsevier, vol. 31(C), pages 87-93.
  2. Lapinova, S. & Saichev, A. & Tarakanova, M., 2013. "Efficiency and probabilistic properties of bridge volatility estimator," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(6), pages 1439-1451.

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