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Measuring downside risk — realised semivariance

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Author Info
Ole E. Barndorff-Nielsen
Silja Kinnebrock
Neil Shephard () (School of Economics and Management, University of Aarhus, Denmark and CREATES)

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Abstract

We propose a new measure of risk, based entirely on downwards moves measured using high frequency data. Realised semivariances are shown to have important predictive qualities for future market volatility. The theory of these new measures is spelt out, drawing on some new results from probability theory.

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Publisher Info
Paper provided by School of Economics and Management, University of Aarhus in its series CREATES Research Papers with number 2008-42.

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Length: 22
Date of creation: 02 Sep 2008
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Handle: RePEc:aah:create:2008-42

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Web page: http://www.econ.au.dk/afn/

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Related research
Keywords: Market frictions; Quadratic variation; Realised variance; Semimartingale; Semivariance;

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  1. Zhou, Bin, 1996. "High-Frequency Data and Volatility in Foreign-Exchange Rates," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 45-52, January.
  2. Ole E. Barndorff-Nielsen & Peter Reinhard Hansen & Asger Lunde & Neil Shephard, 2006. "Designing realised kernels to measure the ex-post variation of equity prices in the presence of noise," Economics Papers 2006-W03, Economics Group, Nuffield College, University of Oxford. [Downloadable!]
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  3. Tim Bollerslev & Jeffrey Wooldridge, 1992. "Quasi-maximum likelihood estimation and inference in dynamic models with time-varying covariances," Econometric Reviews, Taylor and Francis Journals, vol. 11(2), pages 143-172. [Downloadable!] (restricted)
  4. Babsiri, Mohamed El & Zakoian, Jean-Michel, 2001. "Contemporaneous asymmetry in GARCH processes," Journal of Econometrics, Elsevier, vol. 101(2), pages 257-294, April. [Downloadable!] (restricted)
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  5. Silja Kinnebrock & Mark Podolskij, 2007. "A Note on the Central Limit Theorem for Bipower Variation of General Functions," OFRC Working Papers Series 2007fe03, Oxford Financial Research Centre. [Downloadable!]
  6. Ole E. Barndorff-Nielsen & Neil Shephard, 2006. "Econometrics of Testing for Jumps in Financial Economics Using Bipower Variation," Journal of Financial Econometrics, Oxford University Press, vol. 4(1), pages 1-30. [Downloadable!] (restricted)
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  7. Engle, Robert F. & Gallo, Giampiero M., 2006. "A multiple indicators model for volatility using intra-daily data," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 3-27. [Downloadable!] (restricted)
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  8. Ole E. Barndorff-Nielsen, 2004. "Power and Bipower Variation with Stochastic Volatility and Jumps," Journal of Financial Econometrics, Oxford University Press, vol. 2(1), pages 1-37. [Downloadable!] (restricted)
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  9. Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December. [Downloadable!] (restricted)
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  10. Torben G. Andersen & Tim Bollerslev & Nour Meddahi, 2004. "Analytical Evaluation Of Volatility Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1079-1110, November. [Downloadable!] (restricted)
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  11. Mao, James C T, 1970. "Survey of Capital Budgeting: Theory and Practice," Journal of Finance, American Finance Association, vol. 25(2), pages 349-60, May. [Downloadable!] (restricted)
  12. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold, 2007. "Roughing It Up: Including Jump Components in the Measurement, Modeling and Forecasting of Return Volatility," CREATES Research Papers 2007-18, School of Economics and Management, University of Aarhus. [Downloadable!]
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  13. Suzanne S. Lee & Per A. Mykland, 2008. "Jumps in Financial Markets: A New Nonparametric Test and Jump Dynamics," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 21(6), pages 2535-2563, November. [Downloadable!] (restricted)
  14. Ole BARNDORFF-NIELSEN & Svend Erik GRAVERSEN & Jean JACOD & Mark PODOLSKIJ & Neil SHEPHARD, 2004. "A Central Limit Theorem for Realised Power and Bipower Variations of Continuous Semimartingales," OFRC Working Papers Series 2004fe21, Oxford Financial Research Centre. [Downloadable!]
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  15. Jean Jacod & Yingying Li & Per A. Mykland & Mark Podolskij & Mathias Vetter, 2007. "Microstructure Noise in the Continuous Case: The Pre-Averaging Approach - JLMPV-9," CREATES Research Papers 2007-43, School of Economics and Management, University of Aarhus. [Downloadable!]
  16. Zhang, Lan & Mykland, Per A. & Ait-Sahalia, Yacine, 2005. "A Tale of Two Time Scales: Determining Integrated Volatility With Noisy High-Frequency Data," Journal of the American Statistical Association, American Statistical Association, vol. 100, pages 1394-1411, December. [Downloadable!] (restricted)
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  17. Andrew Ang & Joseph Chen & Yuhang Xing, 2006. "Downside Risk," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 19(4), pages 1191-1239. [Downloadable!] (restricted)
  18. Laurent, Sebastien & Peters, Jean-Philippe, 2002. " G@RCH 2.2: An Ox Package for Estimating and Forecasting Various ARCH Models," Journal of Economic Surveys, Blackwell Publishing, vol. 16(3), pages 447-85, July. [Downloadable!] (restricted)
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