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Economic gains of realized volatility in the Brazilian stock market

Author

Listed:
  • Marcio Garcia

    (Department of Economics PUC-Rio)

  • Marcelo Medeiros

    (Department of Economics PUC-Rio)

  • Francisco Eduardo de Luna e Almeida Santos

    (Department of Economics PUC-Rio)

Abstract

A model of realized variance-covariance is proposed using a portfolio with the most liquid stockassets of Ibovespa. The purpose is to evaluate the economic gains associated with following avolatility timing strategy based on the model’s conditional forecasts. Comparing with traditionalvolatility methods, we find that economic gains associated with realized measures perform wellwhen estimation risk is controlled and increase proportionally to the target return. Whenexpected returns are bootstrapped, however, performance fees are not significant, which is anindication that economic gains of realized volatility are offset by estimation risk.

Suggested Citation

  • Marcio Garcia & Marcelo Medeiros & Francisco Eduardo de Luna e Almeida Santos, 2014. "Economic gains of realized volatility in the Brazilian stock market," Textos para discussão 624, Department of Economics PUC-Rio (Brazil).
    • Handle: RePEc:rio:texdis:624
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    References listed on IDEAS

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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