Volatility During the Financial Crisis Through the Lens of High Frequency Data: A Realized GARCH Approach

35 Pages Posted: 25 May 2018

See all articles by Denisa Banulescu

Denisa Banulescu

University of Orleans; Maastricht School of Business and Economics

Peter Reinhard Hansen

University of North Carolina (UNC) at Chapel Hill - Department of Economics; Copenhagen Business School, Finance; Aarhus University - CREATES

Zhuo Huang

National School of Development, Peking University

Marius Matei

University of Tasmania

Date Written: March 12, 2018

Abstract

We study financial volatility during the Global Financial Crisis and use the largest volatility shocks to identify major events during the crisis. Our analysis makes extensive use of high-frequency financial data to model volatility and to determine the timing within the day when the largest volatility shocks occurred. The latter helps us identify the events that may be associated with each of these shocks, and serves to illustrate the benefits of using high-frequency data. Some of the largest volatility shocks coincide, not surprisingly, with the bankruptcy of Lehman Brothers on September 15, 2008 and Congress’s failure to pass the Emergency Economic Stabilization Act on September 29, 2008. Yet, the largest volatility shock was on February 27, 2007, the date when Freddie Mac announced a stricter policy for underwriting subprime loans and a date that was marked by a crash on the Chinese stock market. However, the intraday high-frequency data shows that the main culprit was a computer glitch in the trading system. The days with the largest drops in volatility can in most cases be related to interventions by governments and central banks.

Keywords: Financial Crisis, Volatility, High Frequency Data, Realized GARCH

JEL Classification: C10, C22, C80

Suggested Citation

Banulescu, Denisa and Hansen, Peter Reinhard and Huang, Zhuo and Matei, Marius, Volatility During the Financial Crisis Through the Lens of High Frequency Data: A Realized GARCH Approach (March 12, 2018). Available at SSRN: https://ssrn.com/abstract=3178890 or http://dx.doi.org/10.2139/ssrn.3178890

Denisa Banulescu

University of Orleans ( email )

Rue de Blois
B.P. 6739
45067 Orleans Cedex 2, Orleans cedex 2 45067
France

Maastricht School of Business and Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Peter Reinhard Hansen (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States

HOME PAGE: http://https://sites.google.com/site/peterreinhardhansen/

Copenhagen Business School, Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Zhuo Huang

National School of Development, Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Marius Matei

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

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