Good volatility, bad volatility: Signed jumps and the persistence of volatility

Published

Journal Article

© 2015 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. Using estimators of the variation of positive and negative returns (realized semivariances) and high-frequency data for the S&P 500 Index and 105 individual stocks, this paper sheds new light on the predictability of equity price volatility.We showthat future volatility is more strongly related to the volatility of past negative returns than to that of positive returns and that the impact of a price jump on volatility depends on the sign of the jump, with negative (positive) jumps leading to higher (lower) future volatility. We show that models exploiting these findings lead to significantly better out-of-sample forecast performance.

Full Text

Duke Authors

Cited Authors

  • Patton, AJ; Sheppard, K

Published Date

  • January 1, 2015

Published In

Volume / Issue

  • 97 / 3

Start / End Page

  • 683 - 697

Electronic International Standard Serial Number (EISSN)

  • 1530-9142

International Standard Serial Number (ISSN)

  • 0034-6535

Digital Object Identifier (DOI)

  • 10.1162/REST_a_00503

Citation Source

  • Scopus