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Presentation 3

Presentation 3. Kunal Jain March 24, 2010 Economics 201FS. HAR-RV Model. Heterogeneous Autoregressive model of the Realized Volatility (HAR-RV), Corsi 2003, uses average realized variance over daily, weekly, and monthly time intervals to build a conditional volatility model.

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Presentation 3

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  1. Presentation 3 Kunal Jain March 24, 2010 Economics 201FS

  2. HAR-RV Model • Heterogeneous Autoregressive model of the Realized Volatility (HAR-RV), Corsi 2003, uses average realized variance over daily, weekly, and monthly time intervals to build a conditional volatility model. • h=1 corresponds to daily periods, h=5 corresponds to weekly periods, h=22 corresponds to monthly periods. • This model uses volatilities realized over a 1-day, 5-day, and 1-month time interval to build the conditional volatilities.

  3. HAR-RV Model • Model implemented in MatLab • Regression Results (AMZN) • Coefficient sum approximates one. • Constant? • Reject the null hypothesis?

  4. HAR-RV Model- Kernel Density • Residuals- Kernel Density Plot (Observed-Expected) • Non-parametric way of estimating the probability density function of a random variable- want to resemble a normal distribution.

  5. HAR-RV: Squared Overnight • Including squared overnight returns to look at volatility

  6. HAR-RV Model- Kernel Density *Including overnight returns

  7. HAR-RV Model • Normalizing overnight returns • [Sqrt(RV) & Abs(Overnight)] vs. [RV & Overnight2] • Normalize outliars -> T-statistic for Overnight • Which one is better? [Sqrt(RV) & Abs(Overnight)] [RV & Overnight2]

  8. HAR-RV Model: MedV • Use MedV as a dummy variable in regression • Regression Results with MedV Z-values at 5% significance level (10 minute interval) • T-Distribution with 5 DOF

  9. HAR-RV Model • Regression results with: • Squared Overnight returns • RV & Overnight2 • MedV 5% significant Z-statistic dummy variable (10 minute interval)

  10. Further Research • Significant Levels • STATA integration • More stocks • New Regressors • Integrate Earnings Surprises

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