A new generalized volatility proxy via the stochastic volatility model

Jong Min Kim, Hojin Jung, Li Qin

    Research output: Contribution to journalArticlepeer-review

    Abstract

    This article proposes power transformation of absolute returns as a new proxy of latent volatility in the stochastic model. We generalize absolute returns as a proxy for volatility in that we place no restriction on the power of absolute returns. An empirical investigation on the bias, mean square error and relative bias is carried out for the proposed proxy. Simulation results show that the new estimator exhibiting negligible bias appears to be more efficient than the unbiased estimator with high variance.

    Original languageEnglish (US)
    Pages (from-to)2259-2268
    Number of pages10
    JournalApplied Economics
    Volume49
    Issue number23
    DOIs
    StatePublished - May 15 2017

    Keywords

    • Volatility
    • mean square error
    • relative bias
    • stochastic volatility

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