Asymmetry and Leverage in Realized Volatility
AbstractA wide variety of conditional and stochastic variance models has been used to estimate latent volatility (or risk). In both the conditional and stochastic volatility literature, there has been some confusion between the definitions of asymmetry and leverage. In this paper, we first show the relationship among conditional, stochastic, integrated and realized volatilities. Then we develop a new asymmetric volatility model, which takes account of small and large, and positive and negative, shocks. Using the new specification, we examine alternative volatility models that have recently been developed and estimated in order to understand the differences and similarities in the definitions of asymmetry and leverage. We extend the new specification to realized volatility by taking account of measurement errors. As an empirical example, we apply the new model to the realized volatility of Standard and Poor's 500 Composite Index using Efficient Importance Sampling to show that the new specification of asymmetry significantly improves the goodness of fit, and that the out-of-sample forecasts and VaR thresholds are satisfactory.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-167.
Length: 32 pages
Date of creation: Aug 2009
Date of revision:
Other versions of this item:
- Asai, M. & McAleer, M.J. & Medeiros, M.C., 2008. "Asymmetry and leverage in realized volatility," Econometric Institute Report EI 2008-31, Erasmus University Rotterdam, Econometric Institute.
- Manabu Asai & Michael McAleer & Marcelo C. Medeiros, 2009. "Asymmetry and Leverage in Realized Volatility," CIRJE F-Series CIRJE-F-656, CIRJE, Faculty of Economics, University of Tokyo.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Siem Jan Koopman & Marcel Scharth, 2011.
"The Analysis of Stochastic Volatility in the Presence of Daily Realised Measures,"
Tinbergen Institute Discussion Papers
11-132/4, Tinbergen Institute.
- Siem Jan Koopman & Marcel Scharth, 2012. "The Analysis of Stochastic Volatility in the Presence of Daily Realized Measures," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 11(1), pages 76-115, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.