Conditional Volatility Persistence

60 Pages Posted: 5 Dec 2017 Last revised: 24 May 2019

See all articles by Jian-Xin Wang

Jian-Xin Wang

University of Technology Sydney; Financial Research Network (FIRN)

Minxian Yang

UNSW Australia Business School, School of Economics

Date Written: July 1, 2018

Abstract

This study provides evidence on the common determinants for two prominent features of equity market volatility: its persistence over time and its asymmetric dependence on past returns. We show that daily volatility persistence increases with current returns, especially negative returns. It decreases with current volatility. The estimated volatility persistence from the observed variables is termed ‚Äúconditional volatility persistence‚ÄĚ. It provides a new economic link from return to future volatility, and a more robust explanation for their asymmetric relationship. By estimating the variations in the latent volatility persistence, our model significantly improves volatility forecasts relative to recent advances in volatility models.

Keywords: realized variance, volatility persistence, asymmetric volatility, news impact curve, volatility forecast

JEL Classification: G12, G14, D83, C22

Suggested Citation

Wang, Jian-Xin and Yang, Minxian, Conditional Volatility Persistence (July 1, 2018). Available at SSRN: https://ssrn.com/abstract=3080693 or http://dx.doi.org/10.2139/ssrn.3080693

Jian-Xin Wang (Contact Author)

University of Technology Sydney ( email )

UTS Business School
Finance Decipline
Sydney, NSW
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Minxian Yang

UNSW Australia Business School, School of Economics ( email )

School of Economics
The University of New South Wales
Sydney, NSW NSW 2052
Australia
93853353 (Phone)

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