The Economic Value of Volatility Timing using a Range-Based Volatility Model

31 Pages Posted: 22 Jan 2009

See all articles by Ray Y. Chou

Ray Y. Chou

Academia Sinica

Nathan Liu

Institute of Finance, National Chiao Tung University

Date Written: October 6, 2008

Abstract

There is growing interest in utilizing the range data of asset prices to study the role of volatility in financial markets. In this paper, a new range-based volatility model is used to examine the economic value of volatility timing in a mean-variance framework. We compare its performance with a return-based dynamic volatility model in both in-sample and out-of-sample volatility timing strategies. For a risk-averse investor, it is shown that the predictable ability captured by the dynamic volatility models is economically significant, and that the range-based volatility model performs better than the return-based one.

Keywords: Asset allocation, CARR, DCC, Economic value, Range, Volatility timing

JEL Classification: C5, C52, G11

Suggested Citation

Chou, Ray Y. and Liu, Nathan, The Economic Value of Volatility Timing using a Range-Based Volatility Model (October 6, 2008). Available at SSRN: https://ssrn.com/abstract=1330908 or http://dx.doi.org/10.2139/ssrn.1330908

Ray Y. Chou

Academia Sinica ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

Nathan Liu (Contact Author)

Institute of Finance, National Chiao Tung University ( email )

1001 University Road
East District
Hsinchu, 300
Taiwan

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