Optimal Weight For Realized Variance Based On Intermittent High-Frequency Data

Hiroki Masuda, Takayuki Morimoto

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Japanese stock markets have two types of breaks, overnight and lunch, during which no trading occurs, causing an inevitable increased variance in estimating daily volatility via a naive realized variance (RV). In order to perform a more stabilized estimation, we modify Hansen and Lunde's weighting technique. As an empirical study, we estimate optimal weights by using a particular approach for Japanese stock data listed on the Tokyo Stock Exchange, and then compare the forecast performance of weighted and non-weighted RV through an autoregressive fractionally integrated moving average model. The empirical result indicates that the appropriate use of the optimally weighted RV can lead to remarkably smaller estimation variance compared with the naive RV, in many series. Therefore a more accurate forecasting of daily volatility data is obtained. Finally, we perform a Monte Carlo simulation to support the empirical result.

Original languageEnglish
Pages (from-to)497-527
Number of pages31
JournalJapanese Economic Review
Volume63
Issue number4
DOIs
Publication statusPublished - Dec 1 2012

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High-frequency data
Realized variance
Empirical results
Empirical study
Weighting
Forecast performance
Tokyo Stock Exchange
Variance estimation
Japanese stock market
Monte Carlo simulation
Moving average
Integrated

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Optimal Weight For Realized Variance Based On Intermittent High-Frequency Data. / Masuda, Hiroki; Morimoto, Takayuki.

In: Japanese Economic Review, Vol. 63, No. 4, 01.12.2012, p. 497-527.

Research output: Contribution to journalArticle

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