In this paper we document that realized variation measures constructed from highfrequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictabili

David E. Allena

Marcel Scharthc E

Marcel Scharthe

Michael Mcaleerb C D

Acknowledgements: the authors wish to acknowledge the insightful comments and suggestions of Marcelo Medeiros.
The Financial support of the Australian Research Council is gratefully acknowledged. Michael McAleer wishes to
acknowledge the financial support of the National Science Council, Taiwan. Data supplied by Securities Industry
Research Centre of Asia-Pacific (SIRCA).In this paper we document that realized variation measures constructed from high-frequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Explicitly modeling this volatility risk is fundamental.
We propose a dually asymmetric realized volatility model, which incorporates the fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks.Fac. de Ciencias Económicas y EmpresarialesInstituto Complutense de Análisis Económico (ICAE)FALSEunpu

Allen, David E.

McAleer, Michael

Scharth, Marcel

Docta Complutense

English

Realized volatility risk

David E. Allen

Michael McAleer

Marcel Scharth

CiteSeerX

Realized Volatility Risk

In this paper we document that realized variation measures constructed from highfrequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Explicitly modeling this volatility risk is fundamental.

We propose a dually asymmetric realized volatility model, which incorporates the fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed

account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks

Allen, D.E. (David)

McAleer, M.J. (Michael)

Scharth, M. (Marcel)

Erasmus University Digital Repository

In this paper we document that realized variation measures constructed from highfrequency returns reveal a large degree of volatility risk in stock and index returns, where we characterize volatility risk by the extent to which forecasting errors in realized volatility are substantive. Even though returns standardized by ex post quadratic variation measures are nearly gaussian, this unpredictability brings considerably more uncertainty to the empirically relevant ex ante distribution of returns. Explicitly modeling this volatility risk is fundamental. We propose a dually asymmetric realized volatility model, which incorporates the fact that realized volatility series are systematically more volatile in high volatility periods. Returns in this framework display time varying volatility, skewness and kurtosis. We provide a detailed account of the empirical advantages of the model using data on the S&P 500 index and eight other indexes and stocks

EconStor (ZBW Kiel)

Realized Volatility Risk

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Docta Complutense

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Erasmus University Digital Repository

EconStor (ZBW Kiel)