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Comparison of realized volatilities reflecting overnight returns

장외시간 수익률을 반영한 실현변동성 추정치들의 비교

Cho, Soojin;Kim, Doyeon;Shin, Dong Wan
조수진;김도연;신동완

  • Received : 2015.12.14
  • Accepted : 2015.12.29
  • Published : 2016.02.29

Abstract

This study makes an empirical comparison of various realized volatilities (RVs) in terms of overnight returns. In financial asset markets, during overnight or holidays, no or few trading data are available causing a difficulty in computing RVs for a whole span of a day. A review will be made on several RVs reflecting overnight return variations. The comparison is made for forecast accuracies of several RVs for some financial assets: the US S&P500 index, the US NASDAQ index, the KOSPI (Korean Stock Price Index), and the foreign exchange rate of the Korea won relative to the US dollar. The RV of a day is compared with the square of the next day log-return, which is a proxy for the integrated volatility of the day. The comparison is made by investigating the Mean Absolute Error (MAE) and the Root Mean Square Error (RMSE). Statistical inference of MAE and RMSE is made by applying the model confidence set (MCS) approach and the Diebold-Mariano test. For the three index data, a specific RV emerges as the best one, which addresses overnight return variations by inflating daytime RV.

Keywords

realized volatility;high frequency data;overnight return;proxy;model confidence set approach;Diebold-Mariano test

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Cited by

  1. Choice of weights in a hybrid volatility based on high-frequency realized volatility vol.29, pp.3, 2016, https://doi.org/10.5351/KJAS.2016.29.3.505

Acknowledgement

Supported by : 한국연구재단