Abstract I provide a selective review of recent developments in financial econometrics related to measuring, modeling, forecasting, and pricing “good” and “bad” volatilities based on realized variation type measures constructed from high-frequency intraday data. An especially appealing feature of the different measures concerns the ease with which they may be calculated empirically, merely involving cross-products of signed, or thresholded, high-frequency returns. I begin by considering univariate semivariation measures, followed by multivariate semicovariation and semibeta measures, before briefly discussing even richer partial (co)variation measures. I focus my discussion on practical uses of the measures emphasizing what I consider to be the most noteworthy empirical findings to date pertaining to volatility forecasting and asset pricing.
{"title":"Realized Semi(co)variation: Signs That All Volatilities are Not Created Equal","authors":"Tim Bollerslev","doi":"10.1093/jjfinec/nbab025","DOIUrl":"https://doi.org/10.1093/jjfinec/nbab025","url":null,"abstract":"Abstract I provide a selective review of recent developments in financial econometrics related to measuring, modeling, forecasting, and pricing “good” and “bad” volatilities based on realized variation type measures constructed from high-frequency intraday data. An especially appealing feature of the different measures concerns the ease with which they may be calculated empirically, merely involving cross-products of signed, or thresholded, high-frequency returns. I begin by considering univariate semivariation measures, followed by multivariate semicovariation and semibeta measures, before briefly discussing even richer partial (co)variation measures. I focus my discussion on practical uses of the measures emphasizing what I consider to be the most noteworthy empirical findings to date pertaining to volatility forecasting and asset pricing.","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":"15 4","pages":"219-252"},"PeriodicalIF":2.5,"publicationDate":"2021-11-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512048","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Comment on: Identification Robust Testing of Risk Premia in Finite Samples","authors":"Lynda Khalaf","doi":"10.1093/jjfinec/nbab024","DOIUrl":"https://doi.org/10.1093/jjfinec/nbab024","url":null,"abstract":"","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43714620","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Bayesian Inference of Multivariate Regression Models with Endogenous Markov Regime-Switching Parameters","authors":"Young Min Kim, Kyu Ho Kang","doi":"10.1093/jjfinec/nbab012","DOIUrl":"https://doi.org/10.1093/jjfinec/nbab012","url":null,"abstract":"<span>doi: <strong>10.1093/jjfinec/nbaa021<span></span></strong></span>","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":"149 5","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138512074","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Introduction to the 2018 Hal White Memorial Lecture","authors":"Allan Timmerman, F. Trojani","doi":"10.1093/jjfinec/nbab019","DOIUrl":"https://doi.org/10.1093/jjfinec/nbab019","url":null,"abstract":"","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47081108","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Special Issue on Dimensionality Reduction, Learning, and Machines","authors":"D. Filipović, F. Trojani","doi":"10.1093/jjfinec/nbab013","DOIUrl":"https://doi.org/10.1093/jjfinec/nbab013","url":null,"abstract":"","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-08-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45513343","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The intraday trades profile is the expected intensity of a counting process where the counts measure the number of trades over an interval. It needs to capture the salient features of the trading activity, its spikes, and periods of relative quietness. This calls for an estimator with a time varying resolution that allows us to identify jumps. The problem can be recast as a regression one, using a fused Lasso penalty. The framework allows us to identify jumps within possibly thousands different locations within a day when the number of trading days at disposal is in the order of hundreds. This can be done without imposing any conditions on the counting process except for certain regularity conditions on the expected intensity. The empirical results suggest that much of the trading activity in some liquid futures can be captured by a deterministic seasonal component in the trade arrival process.
{"title":"Intraday Trades Profile Estimation: An Intensity Approach","authors":"Alessio Sancetta","doi":"10.1093/JJFINEC/NBAB014","DOIUrl":"https://doi.org/10.1093/JJFINEC/NBAB014","url":null,"abstract":"\u0000 The intraday trades profile is the expected intensity of a counting process where the counts measure the number of trades over an interval. It needs to capture the salient features of the trading activity, its spikes, and periods of relative quietness. This calls for an estimator with a time varying resolution that allows us to identify jumps. The problem can be recast as a regression one, using a fused Lasso penalty. The framework allows us to identify jumps within possibly thousands different locations within a day when the number of trading days at disposal is in the order of hundreds. This can be done without imposing any conditions on the counting process except for certain regularity conditions on the expected intensity. The empirical results suggest that much of the trading activity in some liquid futures can be captured by a deterministic seasonal component in the trade arrival process.","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43601370","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sam Astill, David I. Harvey, S. Leybourne, A. Taylor, Yang Zu
We generalize the Homm and Breitung (2012) CUSUM-based procedure for the real-time detection of explosive autoregressive episodes in financial price data to allow for time-varying volatility. Such behavior can heavily inflate the false positive rate (FPR) of the CUSUM-based procedure to spuriously signal the presence of an explosive episode. Our modified procedure involves replacing the standard variance estimate in the CUSUM statistics with a nonparametric kernel-based spot variance estimate. We show that the sequence of modified CUSUM statistics has a joint limiting null distribution which is invariant to any time-varying volatility present in the innovations and that this delivers a real-time monitoring procedure whose theoretical FPR is controlled. Simulations show that the modification is effective in controlling the empirical FPR of the procedure, yet sacrifices only a small amount of power to detect explosive episodes, relative to the standard procedure, when the shocks are homoskedastic. An empirical illustration using Bitcoin price data is provided.
{"title":"CUSUM-Based Monitoring for Explosive Episodes in Financial Data in the Presence of Time-Varying Volatility","authors":"Sam Astill, David I. Harvey, S. Leybourne, A. Taylor, Yang Zu","doi":"10.1093/JJFINEC/NBAB009","DOIUrl":"https://doi.org/10.1093/JJFINEC/NBAB009","url":null,"abstract":"\u0000 We generalize the Homm and Breitung (2012) CUSUM-based procedure for the real-time detection of explosive autoregressive episodes in financial price data to allow for time-varying volatility. Such behavior can heavily inflate the false positive rate (FPR) of the CUSUM-based procedure to spuriously signal the presence of an explosive episode. Our modified procedure involves replacing the standard variance estimate in the CUSUM statistics with a nonparametric kernel-based spot variance estimate. We show that the sequence of modified CUSUM statistics has a joint limiting null distribution which is invariant to any time-varying volatility present in the innovations and that this delivers a real-time monitoring procedure whose theoretical FPR is controlled. Simulations show that the modification is effective in controlling the empirical FPR of the procedure, yet sacrifices only a small amount of power to detect explosive episodes, relative to the standard procedure, when the shocks are homoskedastic. An empirical illustration using Bitcoin price data is provided.","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":" ","pages":""},"PeriodicalIF":2.5,"publicationDate":"2021-05-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43596703","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In response to the Subprime Mortgage crisis, the Basel Committee on Banking Supervision (BCBS) has spent the previous decade overhauling the regulatory framework that governs how banks calculate minimum capital requirements. In 2019, the BCBS finalized the Basel 3 regulatory regime, which changes the regulatory measure of market risk and adds new complex calculations based on liquidity and risk factors. This paper is motivated by these changes and seeks to answer the question of how regulation affects banks' choice of risk-management models, whether it incentivizes them to use correctly specified models, and if it results in more stable capital requirements. Our results show that, although the models that minimize regulatory capital for a representative bank portfolio also result in the most stable requirements, these models are generally rejected as being correctly specified and tend to produce inferior forecasts of the regulatory risk measures.
{"title":"Regulatory Capital and Incentives for Risk Model Choice under Basel 3*","authors":"Fred Liu, Lars Stentoft","doi":"10.1093/JJFINEC/NBAA029","DOIUrl":"https://doi.org/10.1093/JJFINEC/NBAA029","url":null,"abstract":"In response to the Subprime Mortgage crisis, the Basel Committee on Banking Supervision (BCBS) has spent the previous decade overhauling the regulatory framework that governs how banks calculate minimum capital requirements. In 2019, the BCBS finalized the Basel 3 regulatory regime, which changes the regulatory measure of market risk and adds new complex calculations based on liquidity and risk factors. This paper is motivated by these changes and seeks to answer the question of how regulation affects banks' choice of risk-management models, whether it incentivizes them to use correctly specified models, and if it results in more stable capital requirements. Our results show that, although the models that minimize regulatory capital for a representative bank portfolio also result in the most stable requirements, these models are generally rejected as being correctly specified and tend to produce inferior forecasts of the regulatory risk measures.","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":"19 1","pages":"53-96"},"PeriodicalIF":2.5,"publicationDate":"2021-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42928983","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this article, we propose a nonparametric approach to estimating generalized autoregressive conditional heteroskedasticity (1,1) models with time-varying parameters. We model the time-varying parameters as a smooth function of time and estimate them using a local linear estimator. We show that our estimator is consistent and is asymptotically normal and that the proposed estimator outperforms a rolling window estimator in Monte Carlo simulation experiments. We present strong evidence of parameter instabilities using daily returns of stock indices and explore implications to risk management measures, such as value-at-risk and expected shortfall, through backtesting.
{"title":"Local-Linear Estimation of Time-Varying-Parameter GARCH Models and Associated Risk Measures","authors":"A. Inoue, Lucy L. Jin, Denis Pelletier","doi":"10.1093/jjfinec/nbaa026","DOIUrl":"https://doi.org/10.1093/jjfinec/nbaa026","url":null,"abstract":"\u0000 In this article, we propose a nonparametric approach to estimating generalized autoregressive conditional heteroskedasticity (1,1) models with time-varying parameters. We model the time-varying parameters as a smooth function of time and estimate them using a local linear estimator. We show that our estimator is consistent and is asymptotically normal and that the proposed estimator outperforms a rolling window estimator in Monte Carlo simulation experiments. We present strong evidence of parameter instabilities using daily returns of stock indices and explore implications to risk management measures, such as value-at-risk and expected shortfall, through backtesting.","PeriodicalId":47596,"journal":{"name":"Journal of Financial Econometrics","volume":"19 1","pages":"202-234"},"PeriodicalIF":2.5,"publicationDate":"2021-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1093/jjfinec/nbaa026","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48120991","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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