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Realized Volatility and Absolute Return Volatility: A Comparison Indicating Market Risk
Zheng ZY(郑泽宇); Qiao, Zhi; Takaishi, Tetsuya; Stanley, H. Eugene; Li, Baowen
Department数字工厂研究室
Source PublicationPLOS ONE
ISSN1932-6203
2014
Volume9Issue:7Pages:1-10
Indexed BySCI ; SSCI
WOS IDWOS:000339614100069
Contribution Rank1
Funding OrganizationNational University of Singapore [R-144-000-313-133] ; Japan Society for the Promotion of Science Grant [25330047] ; Defense Threat Reduction Agency [HDTRA-1-10-1-0014, HDTRA-1-09-1-0035] ; National Science Foundation [CMMI 1125290] ; Chinese Academy of Sciences [Y4FA030A01]
Abstract

Measuring volatility in financial markets is a primary challenge in the theory and practice of risk management and is essential when developing investment strategies. Although the vast literature on the topic describes many different models, two nonparametric measurements have emerged and received wide use over the past decade: realized volatility and absolute return volatility. The former is strongly favored in the financial sector and the latter by econophysicists. We examine the memory and clustering features of these two methods and find that both enable strong predictions. We compare the two in detail and find that although realized volatility has a better short-term effect that allows predictions of near-future market behavior, absolute return volatility is easier to calculate and, as a risk indicator, has approximately the same sensitivity as realized volatility. Our detailed empirical analysis yields valuable guidelines for both researchers and market participants because it provides a significantly clearer comparison of the strengths and weaknesses of the two methods.

Language英语
WOS HeadingsScience & Technology
WOS SubjectMultidisciplinary Sciences
WOS KeywordTESTABLE DISTRIBUTIONAL IMPLICATIONS ; EXCHANGE-RATES ; MODELS ; VARIANCE ; NOISE
WOS Research AreaScience & Technology - Other Topics
Citation statistics
Cited Times:13[WOS]   [WOS Record]     [Related Records in WOS]
Document Type期刊论文
Identifierhttp://ir.sia.cn/handle/173321/15194
Collection数字工厂研究室
Corresponding AuthorZheng ZY(郑泽宇)
Affiliation1.Shenyang Institute of Automation, Chinese Academy of Sciences, Shenyang, P.R. China
2.Department of Physics and Centre for Computational Science and Engineering, National University of Singapore, Singapore, Republic of Singapore
3.NUS Graduate School for Integrative Sciences and Engineering, National University of Singapore, Singapore, Republic of Singapore
4.Hiroshima University of Economics, Hiroshima, Japan
5.Center for Polymer Studies and Department of Physics, Boston University, Boston, Massachusetts, United States of America
Recommended Citation
GB/T 7714
Zheng ZY,Qiao, Zhi,Takaishi, Tetsuya,et al. Realized Volatility and Absolute Return Volatility: A Comparison Indicating Market Risk[J]. PLOS ONE,2014,9(7):1-10.
APA Zheng ZY,Qiao, Zhi,Takaishi, Tetsuya,Stanley, H. Eugene,&Li, Baowen.(2014).Realized Volatility and Absolute Return Volatility: A Comparison Indicating Market Risk.PLOS ONE,9(7),1-10.
MLA Zheng ZY,et al."Realized Volatility and Absolute Return Volatility: A Comparison Indicating Market Risk".PLOS ONE 9.7(2014):1-10.
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