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    The relationship between the volatility of returns and the number of jumps in financial markets

    Cartea, Alvaro and Karyampas, Dimitrios (2016) The relationship between the volatility of returns and the number of jumps in financial markets. Econometric Reviews 35 (6), pp. 929-950. ISSN 0747-4938.

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    Abstract

    We propose a methodology to employ high frequency financial data to obtain estimates of volatility of log-prices which are not affected by microstructure noise and Lévy jumps. We introduce the ‘number of jumps’ as a variable to explain and predict volatility and show that the number of jumps in SPY prices is an important variable to explain the daily volatility of the SPY log-returns, has more explanatory power than other variables (e.g., high and low, open and close), and has a similar explanatory power to that of the VIX. Finally, number of jumps is very useful to forecast volatility and contains information that is not impounded in the VIX.

    Metadata

    Item Type: Article
    Keyword(s) / Subject(s): High-frequency data, Implied volatility, Jumps, Microstructure noise, VIX, Volatility forecasts
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 30 Oct 2014 09:31
    Last Modified: 07 Sep 2016 09:58
    URI: http://eprints.bbk.ac.uk/id/eprint/10824

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