Realized Stochastic Volatility with General Asymmetry and Long Memory

TI 2017-038/III Tinbergen Institute Discussion Paper

38 Pages Posted: 19 Apr 2017

See all articles by Manabu Asai

Manabu Asai

Soka University - Faculty of Economics

Chia-Lin Chang

National Chung Hsing University - Department of Applied Economics, Department of Finance

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute; Tinbergen Institute; University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Date Written: April 18, 2017

Abstract

The paper develops a novel realized stochastic volatility model of asset returns and realized volatility that incorporates general asymmetry and long memory (hereafter the RSV-GALM model). The contribution of the paper ties in with Robert Basmann’s seminal work in terms of the estimation of highly non-linear model specifications (“Causality tests and observationally equivalent representations of econometric models”, Journal of Econometrics, 1988), especially for specifying causal effects from returns to future volatility. This paper discusses asymptotic results of a Whittle likelihood estimator for the RSV-GALM model and a test for general asymmetry, and analyses the finite sample properties. The paper also develops an approach to obtain volatility estimates and out-of-sample forecasts. Using high frequency data for three US financial assets, the new model is estimated and evaluated. The paper compares the forecasting performance of the new model with a realized conditional volatility model.

Keywords: Stochastic Volatility; Realized Measure; Long Memory; Asymmetry; Whittle likelihood

JEL Classification: C13, C22

Suggested Citation

Asai, Manabu and Chang, Chia-Lin and McAleer, Michael, Realized Stochastic Volatility with General Asymmetry and Long Memory (April 18, 2017). TI 2017-038/III Tinbergen Institute Discussion Paper , Available at SSRN: https://ssrn.com/abstract=2954454 or http://dx.doi.org/10.2139/ssrn.2954454

Manabu Asai

Soka University - Faculty of Economics ( email )

1-236 Tangi-cho
Hachioji (city)
Tokyo, 192-8577
Japan

HOME PAGE: http://www.soka.ac.jp/en/#a01

Chia-Lin Chang (Contact Author)

National Chung Hsing University - Department of Applied Economics, Department of Finance ( email )

Taichung, Taiwan
China

Michael McAleer

Erasmus University Rotterdam - Erasmus School of Economics, Econometric Institute ( email )

Rotterdam
Netherlands

Tinbergen Institute

Rotterdam
Netherlands

University of Tokyo - Centre for International Research on the Japanese Economy (CIRJE), Faculty of Economics

Tokyo
Japan

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