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A three-dimensional asymmetric power HEAVY model

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posted on 18.09.2020 by Stavroula Yfanti, Georgios Chortareas, Menelaos Karanasos, Emmanouil Noikokyris
This article proposes the three‐dimensional HEAVY system of daily, intra‐daily, and range‐based volatility equations. We augment the bivariate model with a third volatility metric, the Garman–Klass estimator, and enrich the trivariate system with power transformations and asymmetries. Most importantly, we derive the theoretical properties of the multivariate asymmetric power model and explore its finite‐sample performance through a simulation experiment on the size and power properties of the diagnostic tests employed. Our empirical application shows that all three power transformed conditional variances are found to be significantly affected by the powers of squared returns, realized measure, and range‐based volatility as well. We demonstrate that the augmentation of the HEAVY framework with the range‐based volatility estimator, leverage and power effects improves remarkably its forecasting accuracy. Finally, our results reveal interesting insights for investments, market risk measurement, and policymaking.

History

School

  • Business and Economics

Department

  • Business

Published in

International Journal of Finance and Economics

Publisher

John Wiley & Sons Ltd

Version

VoR (Version of Record)

Rights holder

© The Authors

Publisher statement

This is an Open Access Article. It is published by Wiley under the Creative Commons Attribution 4.0 International Licence (CC BY 4.0). Full details of this licence are available at: https://creativecommons.org/licenses/by/4.0/

Acceptance date

16/09/2020

Publication date

2020-10-09

Copyright date

2020

ISSN

1076-9307

eISSN

1099-1158

Language

en

Depositor

Dr Stavroula Yfanti. Deposit date: 17 September 2020

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