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

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Listed:
  • Ole E. Barndorff-Nielsen

    () (University of Aarhus, Denmark)

  • Neil Shephard

    () (Nuffield College, Oxford)

Abstract

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.

Suggested Citation

  • Ole E. Barndorff-Nielsen & Neil Shephard, 2003. "Impact of jumps on returns and realised variances: econometric analysis of time-deformed Levy processes," Economics Papers 2003-W12, Economics Group, Nuffield College, University of Oxford.
  • Handle: RePEc:nuf:econwp:0312
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    References listed on IDEAS

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    1. Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March.
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    4. Ole E. Barndorff-Nielsen & Neil Shephard, 2006. "Econometrics of Testing for Jumps in Financial Economics Using Bipower Variation," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 1-30.
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    15. Ole E. Barndorff-Nielsen & Neil Shephard, 2006. "Econometrics of Testing for Jumps in Financial Economics Using Bipower Variation," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 1-30.
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    Keywords

    Kalman filter; Levy process; Long-memory; Quasi-likelihood; Realised variance; Stochastic volatility; Time-change.;

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