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ON THE ROBUSTNESS OF RANGE‐BASED VOLATILITY ESTIMATORS
Author(s) -
Akay Ozgur Ozzy,
Griffiths Mark D.,
Winters Drew B.
Publication year - 2010
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2010.01267.x
Subject(s) - volatility (finance) , econometrics , forward volatility , estimator , volatility swap , standard deviation , economics , robustness (evolution) , volatility risk premium , implied volatility , volatility smile , stochastic volatility , market microstructure , realized variance , statistics , mathematics , finance , biochemistry , chemistry , order (exchange) , gene
We empirically examine Parkinson's range‐based volatility estimate in the federal funds market, which is unique because institutional regulations create a predictable pattern in interday volatility. We find that range‐based volatility estimates and standard deviations produce the expected volatility pattern. We also find that at trading pressure points where microstructure noise should be greatest, range‐based estimates are less than the standard deviations. Thus, we support the argument that range‐based volatility estimates remove the upward bias created by microstructure noise. We find that the Parkinson method is the most efficient range‐based volatility measure among a set of alternates in this market.