Estimating Stochastic Volatility and Jumps Using High-Frequency Data and Bayesian Methods
Journal Title: Finance a uver - Year 2016, Vol 66, Issue 4
Abstract
We compare two approaches for estimation of stochastic volatility and jumps in the EUR//USD time series—the non-parametric power-variation approach using high-frequency returns and the parametric Bayesian approach (MCMC estimation of SVJD models) using daily returns. We have found that the estimated jump probabilities based on these two methods are surprisingly uncorrelated (using a rank correlation coefficient). This means that the two methods do not identify jumps on the same days. We further found that the non-parametrically identified jumps are in fact almost indistinguishable from the continuous price volatility at the daily frequency because they are too small. In most cases, the parametric approach using daily data does not in fact identify real jumps (i.e. discontinuous price changes) but rather only large returns caused by continuous price volatility. So if these unusually high daily returns are to be modelled, the parametric approach should be used, but if the goal is to identify the discontinuous price changes in the price evolution, the non-parametric high-frequency-based methods should be preferred. Among other results, we further found that the non-parametrically identified jumps exhibit only weak clustering (analyzed using the Hawkes process), but relatively strong size dependency. In the case of parametrically identified jumps, no clustering was present. We further found that after the beginning of 2012, the amount of jumps in the EUR//USD series greatly increased, but the results of our study still hold.
Authors and Affiliations
Milan Ficura, Jiri Witzany
Keywords
Related Articles
- EP ID EP297612
- DOI -
- Views 164
- Downloads 0
Inflation Targeting and Variability of Money Market Interest Rates Under a Zero Lower Bound
The paper presents a formal framework of money market interest rates variability under a zero lower bound in a monetary policy strategy of inflation targeting. The potential factors influencing the variability of money m...
Exchange Rate Pass-Through in Central and Eastern Europe: A Panel Bayesian VAR Approach
In this paper we estimate average and individual countries’ exchange rate pass-through to producer and consumer price indices in four Central and Eastern Europe countries (Romania, the Czech Republic, Hungary and Poland)...
Central and Eastern European Stock Exchanges under Stress: A Range-Based Volatility Spillover Framework
In this paper we analyze volatility spillovers among stock markets of Central and Eastern European (CEE) countries: Poland, Hungary and the Czech Republic vis-à-vis Germany, the United States and Russia. For this, we uti...
An Empirical Analysis of Welfare Dependence in the Czech Republic
The scope of this paper is to empirically test whether the potential disincentive effects of the Czech social security system affected the labor flows from unemployment to employment over the period 1995–2005. Combining...
The Role of the Real Exchange Rate in Credit Growth in Central and Eastern European Countries: A Bank-Level Analysis
This study analyzes the effects of macroeconomic and bank-level variables on the loan growth of banks in Central and Eastern European countries (CEECs) for the period between 1999 and 2010. Differences between private, s...