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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.

Suggested Citation

  • Chou, Ray Yeutien & Liu, Nathan, 2010. "The economic value of volatility timing using a range-based volatility model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(11), pages 2288-2301, November.
  • Handle: RePEc:eee:dyncon:v:34:y:2010:i:11:p:2288-2301
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    References listed on IDEAS

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    Cited by:

    1. Auer, Benjamin R., 2016. "How does Germany's green energy policy affect electricity market volatility? An application of conditional autoregressive range models," Energy Policy, Elsevier, vol. 98(C), pages 621-628.
    2. Arısoy, Yakup Eser & Altay-Salih, Aslıhan & Akdeniz, Levent, 2015. "Aggregate volatility expectations and threshold CAPM," The North American Journal of Economics and Finance, Elsevier, vol. 34(C), pages 231-253.
    3. I‐Ming Jiang & Jui‐Cheng Hung & Chuan‐San Wang, 2014. "Volatility Forecasts: Do Volatility Estimators and Evaluation Methods Matter?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 34(11), pages 1077-1094, November.
    4. 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.
    5. Awartani, Basel & Maghyereh, Aktham Issa, 2013. "Dynamic spillovers between oil and stock markets in the Gulf Cooperation Council Countries," Energy Economics, Elsevier, vol. 36(C), pages 28-42.
    6. Molnár, Peter, 2012. "Properties of range-based volatility estimators," International Review of Financial Analysis, Elsevier, vol. 23(C), pages 20-29.
    7. 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.
    8. repec:eee:ecofin:v:42:y:2017:i:c:p:448-460 is not listed on IDEAS
    9. repec:eee:ecmode:v:64:y:2017:i:c:p:349-356 is not listed on IDEAS

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