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Continuous-time models, realized volatilities, and testable distributional implications for daily stock returns

Publication ,  Journal Article
Andersen, TG; Bollerslev, T; Frederiksen, P; Nielsen, MØ
Published in: Journal of Applied Econometrics
March 1, 2010

We provide an empirical framework for assessing the distributional properties of daily speculative returns within the context of the continuous-time jump diffusion models traditionally used in asset pricing finance. Our approach builds directly on recently developed realized variation measures and non-parametric jump detection statistics constructed from high-frequency intra-day data. A sequence of simple-to-implement moment-based tests involving various transformations of the daily returns speak directly to the importance of different distributional features, and may serve as useful diagnostic tools in the specification of empirically more realistic continuous-time asset pricing models. On applying the tests to the 30 individual stocks in the Dow Jones Industrial Average index, we find that it is important to allow for both time-varying diffusive volatility, jumps, and leverage effects to satisfactorily describe the daily stock price dynamics. Copyright © 2009 John Wiley & Sons, Ltd.

Duke Scholars

Published In

Journal of Applied Econometrics

DOI

EISSN

1099-1255

ISSN

0883-7252

Publication Date

March 1, 2010

Volume

25

Issue

2

Start / End Page

233 / 261

Related Subject Headings

  • Econometrics
  • 3802 Econometrics
  • 3801 Applied economics
  • 1403 Econometrics
  • 1402 Applied Economics
 

Citation

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ICMJE
MLA
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Andersen, T. G., Bollerslev, T., Frederiksen, P., & Nielsen, M. Ø. (2010). Continuous-time models, realized volatilities, and testable distributional implications for daily stock returns. Journal of Applied Econometrics, 25(2), 233–261. https://doi.org/10.1002/jae.1105
Andersen, T. G., T. Bollerslev, P. Frederiksen, and M. Ø. Nielsen. “Continuous-time models, realized volatilities, and testable distributional implications for daily stock returns.” Journal of Applied Econometrics 25, no. 2 (March 1, 2010): 233–61. https://doi.org/10.1002/jae.1105.
Andersen TG, Bollerslev T, Frederiksen P, Nielsen MØ. Continuous-time models, realized volatilities, and testable distributional implications for daily stock returns. Journal of Applied Econometrics. 2010 Mar 1;25(2):233–61.
Andersen, T. G., et al. “Continuous-time models, realized volatilities, and testable distributional implications for daily stock returns.” Journal of Applied Econometrics, vol. 25, no. 2, Mar. 2010, pp. 233–61. Scopus, doi:10.1002/jae.1105.
Andersen TG, Bollerslev T, Frederiksen P, Nielsen MØ. Continuous-time models, realized volatilities, and testable distributional implications for daily stock returns. Journal of Applied Econometrics. 2010 Mar 1;25(2):233–261.
Journal cover image

Published In

Journal of Applied Econometrics

DOI

EISSN

1099-1255

ISSN

0883-7252

Publication Date

March 1, 2010

Volume

25

Issue

2

Start / End Page

233 / 261

Related Subject Headings

  • Econometrics
  • 3802 Econometrics
  • 3801 Applied economics
  • 1403 Econometrics
  • 1402 Applied Economics