High Idiosyncratic Volatility and Low Returns: A Prospect ...
Jump in Returns & Jump in Volatility
description
Transcript of Jump in Returns & Jump in Volatility
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Jump in Returns & Jump in Volatility
Kyu Won ChoiMarch 22, 2011
+Data Set
S&P 500 1997/1/2 – 2010/12/30 (3482 trading days) 1-min frequency prices from 9:35am to 3:59pm Extracted prices from 2003/9/22 to 2008/12/31 (1316
trading days) For 5-min RV & BV & TV (jump detection) alone (76
returns per day)
VIX 2003/9/22 – 2008/12/31 (5-min prices) Though the same time period, inconsistent number of
trading days (?)
+Outline
Focus on Truncated Variance to detect the Jump in S&P 500 Index
Jump in VIX using Power Variation
Realized Correlation & T-statistics
+ S&P 500 Index
+ Realized Variance & Bipower Variance
+Realized Variance & Truncated (Threshold) Variance
+ Truncated (Threshold) Variance3 SDs & 2SDs
+ Jump Contribution (BV and 4ST TV)
+ Jump Contribution(3SD and 2SD TV)
+ VIX Index
+ VIX: Power Variation (p = 2)
+VIX : Power Variation (p=3,p=4)
+VIX Power Variation (p=1, c=1,1.5)
+ Activity Index (Todorov, Tauchen 2010)
Activity Signature Function (ASF) behaves differently for the process Continuous processes Continuous + jump processes Pure jump processes
Pure Jump Process from QASF, 5-min (Todorov, Tauchen 2010)
+Jump in Returns and Volatility
Realized Correlation between jumps in two series
T-statistics
+Realized Correlation
+Problems
Incorrect results because of the data/coding problem? Starting with 2003, the data clearing
VIX data extra 11/28, 12/24, 12/26 (that SPFU does not have) Some days, missing the 5-min price data
SPFU fixed closing price: 5-minute frequency (to be consistent )
Analyze the results year by year During the times of market stress, is the correlation between
jump in price and volatility higher than other times?
+Realized Correlation (2003)
0.0~0.1
0.1~0.2
0.2~0.3
0.3~0.4
0.4~0.5
0.5~0.6
0.6~0.7
0.7~0.8
0.8~0.9
0.9~1.0
1 3 5 6 11 11 7 9 8 1
+ T-statistics