The economic value of volatility timing with realized jumps

Nolte, Ingmar and Xu, Qi (2015) The economic value of volatility timing with realized jumps. Journal of Empirical Finance, 34. pp. 45-59. ISSN 0927-5398

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This paper comprehensively investigates the role of realized jumps detected from high frequency data in predicting future volatility from both statistical and economic perspectives. Using seven major jump tests, we show that separating jumps from diffusion improves volatility forecasting both in-sample and out-of-sample. Moreover, we show that these statistical improvements can be translated into economic value. We find a risk-averse investor can significantly improve her portfolio performance by incorporating realized jumps into a volatility timing based portfolio strategy. Our results hold true across the majority of jump tests, and are robust to controlling for microstructure effects and transaction costs.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Empirical Finance
Additional Information:
18 month embargo This is the author’s version of a work that was accepted for publication in Journal of Empirical Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Empirical Finance, 34, 2015 DOI: 10.1016/j.jempfin.2015.03.019
Uncontrolled Keywords:
?? high frequency datajumpsnonparametric testsasset allocationvolatility forecastingrealized volatilityfinanceeconomics and econometricsdiscipline-based research ??
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Deposited On:
09 Sep 2015 06:32
Last Modified:
15 Jul 2024 15:23