Roughing it up: Including jump components in the measurement, modeling, and forecasting of return volatility

Journal Article (Journal Article)

A growing literature documents important gains in asset return volatility forecasting via use of realized variation measures constructed from high-frequency returns. We progress by using newly developed bipower variation measures and corresponding nonparametric tests for jumps. Our empirical analyses of exchange rates, equity index returns, and bond yields suggest that the volatility jump component is both highly important and distinctly less persistent than the continuous component, and that separating the rough, jump moves from the smooth continuous moves results in significant out-of-sample volatility forecast improvements. Moreover, many of the significant jumps are associated with specific macroeconomic news announcements.

Full Text

Duke Authors

Cited Authors

  • Andersen, TG; Bollerslev, T; Diebold, FX

Published Date

  • November 1, 2007

Published In

Volume / Issue

  • 89 / 4

Start / End Page

  • 701 - 720

Electronic International Standard Serial Number (EISSN)

  • 1530-9142

International Standard Serial Number (ISSN)

  • 0034-6535

Digital Object Identifier (DOI)

  • 10.1162/rest.89.4.701

Citation Source

  • Scopus