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Impact of jumps on returns and realised variances: econometric analysis of time-deformed Levy processes

  • Barndorff-Nielsen, Ole E.
  • Shephard, Neil

In order to assess the effect of jumps on realised variance calculations, we study some of the econometric properties of time-changed Levy processes. We show that in general we can derive the second order properties of realised variances and use these to estimate the parameters of such models. Our analytic results give a first indication of the degrees of inconsistency of realised variance as an estimator of the time-change in the non-Brownian case. Further, our results suggest volatility is even more predictable than has been shown by the recent econometric work on realised variance.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304-4076(05)00011-4
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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 131 (2006)
Issue (Month): 1-2 ()
Pages: 217-252

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Handle: RePEc:eee:econom:v:131:y:2006:i:1-2:p:217-252
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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