On the Interaction between Ultra-High Frequency Measures of Volatility

Universita' di Firenze, Dipartimento di Statistica Econometrics Working Paper No. 2007-01

22 Pages Posted: 25 May 2007

See all articles by Giampiero M. Gallo

Giampiero M. Gallo

Corte dei Conti - Italian Court of Audits; University of Bologna - Rimini Center for Economic Analysis (RCEA); Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti"

Margherita Velucchi

University of Florence - Dipartimento di Statistica, Informatica, Applicazioni (DiSIA)

Date Written: May 25, 2007

Abstract

We analyze several measures of volatility (realized variance, bipower variation and squared daily returns) as estimators of integrated variance of a continuous time stochastic process for an asset price. We use a Multiplicative Error Model to describe the evolution of each measure as the product of its conditional expectation and a positive valued iid innovation. By inserting past values of each measure and asymmetric effects based on the sign of the return in the specification of the conditional expectation, one can investigate the information content of each indicator relative to the others. The results show that there is a directed dynamic relationship among measures, with squared returns and bipower variance interdependent with one another, and affecting realized variance without any feed-back from the latter.

Keywords: Volatility, Multiplicative Error Models, Realized Variance, Bi-power Variance, Squared Returns, Jumps

JEL Classification: C22, C51, C53

Suggested Citation

Gallo, Giampiero M. and Velucchi, Margherita, On the Interaction between Ultra-High Frequency Measures of Volatility (May 25, 2007). Universita' di Firenze, Dipartimento di Statistica Econometrics Working Paper No. 2007-01, Available at SSRN: https://ssrn.com/abstract=988998 or http://dx.doi.org/10.2139/ssrn.988998

Giampiero M. Gallo (Contact Author)

Corte dei Conti - Italian Court of Audits ( email )

viale Mazzini
Roma, Roma 00195
Italy

University of Bologna - Rimini Center for Economic Analysis (RCEA) ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

Universita' di Firenze - Dipartimento di Statistica, Informatica, Applicazioni "G.Parenti" ( email )

Viale G.B. Morgagni, 59
Florence, 50134
Italy
0039 055 2751 591 (Phone)
0039 055 4223560 (Fax)

HOME PAGE: http://www.disia.unifi.it/gallog

Margherita Velucchi

University of Florence - Dipartimento di Statistica, Informatica, Applicazioni (DiSIA) ( email )

Viale Morgagni, 59
Florence, 50134
Italy

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