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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Official URL: http://dx.doi.org/10.1080/07474938.2014.976529

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:	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:	https://eprints.bbk.ac.uk/id/eprint/10824

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• The relationship between the volatility of returns and the number of jumps in financial markets. (deposited 09 Jul 2013 14:27)
  • The relationship between the volatility of returns and the number of jumps in financial markets. (deposited 30 Oct 2014 09:31) [Currently Displayed]

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