Realized Measures to Explain Volatility Changes over Time
Abstract
:1. Introduction
Q1: “If volatility is priced, does an anticipated increase in volatility raise the required return on equity, leading to an immediate stock price decline?”
Q2: “Does a drop in the value of the stock (negative return) increase financial leverage, so that it makes the stock riskier and increases its volatility?”.
2. Data and Methodology
2.1. Realized Measures
2.1.1. Theoretical Considerations
2.1.2. Classes of Realized Measures
2.2. Data and Data Adjustments
3. Empirical Results
3.1. Volatility Feedback Effect
3.2. Leverage Effect Results
4. Practical Implications
4.1. Out-of-Sample Analysis
4.2. Portfolio Implications
5. Summary and Conclusions
Author Contributions
Funding
Acknowledgments
Conflicts of Interest
References
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1 | The relation between asset returns and expected volatility motivates the research to produce volatility forecast models using several techniques (see Xu 1999; Bali and Theodossiou 2007; Wang and Zhu 2010; Kiliç and Ugur 2018; Shang et al. 2018; among others). |
2 |
Code | Description |
---|---|
Realized bi-power variation (5-min) | |
Realized bi-power variation (5-min sub-sampled) | |
Median realized variance (5-min) | |
Realized Kernel variance (non-flat Parzen) | |
Realized Kernel variance (Tukey-Hanning(2)) | |
Realized Kernel variance (two-scale/Barlett) | |
Realized downside semi-variance (5-min) | |
Realized downside semi-variance (5-min sub-sampled) | |
Realized variance | |
Realized variance (10-min) | |
Realized variance (10-min sub-sampled) | |
Realized variance (5-min) | |
Realized variance (5-min sub-sampled) |
Variable | Coefficient | Marginal Impact | Coefficient | Marginal Impact |
---|---|---|---|---|
Panel A. S&P500 | Panel B. FTSE100 | |||
24.5036 *** | 0.0037 | 14.8874 | 0.0010 | |
(5.9560) | (7.0660) | |||
2.4522 | 0.0000 | 80.1180 *** | 0.0080 | |
(13.1600) | (13.2200) | |||
53.8661 *** | 0.0307 | 41.4710 *** | 0.0231 | |
(4.493) | (4.003) | |||
20.8178 ** | 0.0012 | 1.9995 | 0.0000 | |
(9.0300) | (7.0130) | |||
174.6970 *** | 0.2244 | 121.288 *** | 0.0409 | |
(4.8200) | (8.712) | |||
147.8110 *** | 0.1341 | 89.9744 *** | 0.0184 | |
(5.5730) | (9.765) | |||
138.2400 *** | 0.0896 | 85.2223 *** | 0.0154 | |
(6.5380) | (10.1000) | |||
13.5120 *** | 0.0026 | 10.6719 ** | 0.0011 | |
(3.9240) | (4.7250) | |||
80.5904 *** | 0.0256 | 10.4318 | 0.0003 | |
(7.383) | (9.0230) | |||
183.5250 *** | 0.0256 | 157.8510 *** | 0.0226 | |
(16.8100) | (15.4000) | |||
c | 3.0330 × 10−4 * | 0.0007 | 5.9472 × 10−4 *** | 0.0034 |
(1.6720 × 10−4) | (1.5020 × 10−4) | |||
Obs. | 4552 | 4552 | ||
R adj | 0.7229 | 0.7436 |
Variable | Coefficient | Marginal Impact | Coefficient | Marginal Impact |
---|---|---|---|---|
Panel A. S&P500 | Panel B. FTSE100 | |||
−1.1040 × 10−3 *** | 0.0068 | −5.6477 × 10−4 *** | 0.0037 | |
(1.9790 × 10−4) | (1.3730 × 10−4) | |||
c | 1.1636 × 10−4 | 0.1755 | 8.5092 × 10−5 *** | 0.2158 |
(3.7350 × 10−6) | (2.4060 × 10−6) | |||
Obs. | 4550 | 4550 | ||
R-squared | 6.7900 × 10−3 | 3.7000 × 10−3 |
Low Volatility Regimes | High Volatility Regimes |
---|---|
Panel A. S&P500 | |
0.8174 | 0.8809 |
0.8274 | 0.8101 |
0.7920 | 0.7452 |
0.7377 | 0.7849 |
0.7821 | 0.7921 |
Panel B. FTSE100 | |
0.6685 | 0.7423 |
0.6776 | 0.7564 |
0.7324 | 0.7762 |
0.6416 | 0.8731 |
0.7934 | 0.7697 |
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Floros, C.; Gkillas, K.; Konstantatos, C.; Tsagkanos, A. Realized Measures to Explain Volatility Changes over Time. J. Risk Financial Manag. 2020, 13, 125. https://doi.org/10.3390/jrfm13060125
Floros C, Gkillas K, Konstantatos C, Tsagkanos A. Realized Measures to Explain Volatility Changes over Time. Journal of Risk and Financial Management. 2020; 13(6):125. https://doi.org/10.3390/jrfm13060125
Chicago/Turabian StyleFloros, Christos, Konstantinos Gkillas, Christoforos Konstantatos, and Athanasios Tsagkanos. 2020. "Realized Measures to Explain Volatility Changes over Time" Journal of Risk and Financial Management 13, no. 6: 125. https://doi.org/10.3390/jrfm13060125