The issue of combining low– and high–frequency components of volatility is addressed within the class of Multiplicative Error Models both in the univariate and multivariate cases. Inference based on the Generalized Method of Moments is suggested, which has the advantage of not requiring a parametric choice for the error distribution. The application relates to several volatility market indices (US, Europe and East Asia, with interde- pendencies in the short–run components of absolute returns, realized kernel volatility and option–based implied volatility indices): a set of diagnostic tools is used to evaluate the evidence of a relevant low–frequency component across markets, also from a forecasting comparison perspective. The results show that the slow–moving component in the dynamics achieves a better fit to the data and allows for an interpretation of what moves the local average level of volatility.

Multiplicative Error Models: 20 years on / Cipollini F.; Gallo G.M.. - In: ECONOMETRICS AND STATISTICS. - ISSN 2452-3062. - STAMPA. - (2022), pp. 1-21. [10.1016/j.ecosta.2022.05.005]

Multiplicative Error Models: 20 years on

Gallo G. M.
Writing – Original Draft Preparation
2022

Abstract

The issue of combining low– and high–frequency components of volatility is addressed within the class of Multiplicative Error Models both in the univariate and multivariate cases. Inference based on the Generalized Method of Moments is suggested, which has the advantage of not requiring a parametric choice for the error distribution. The application relates to several volatility market indices (US, Europe and East Asia, with interde- pendencies in the short–run components of absolute returns, realized kernel volatility and option–based implied volatility indices): a set of diagnostic tools is used to evaluate the evidence of a relevant low–frequency component across markets, also from a forecasting comparison perspective. The results show that the slow–moving component in the dynamics achieves a better fit to the data and allows for an interpretation of what moves the local average level of volatility.
1
21
Cipollini F.; Gallo G.M.
File in questo prodotto:
File Dimensione Formato  
1-s2.0-S2452306222000740-main.pdf

Accesso chiuso

Tipologia: Pdf editoriale (Version of record)
Licenza: DRM non definito
Dimensione 3.1 MB
Formato Adobe PDF
3.1 MB Adobe PDF   Visualizza/Apri   Richiedi una copia

I documenti in FLORE sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/2158/1286478
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 0
  • ???jsp.display-item.citation.isi??? ND
social impact