Electronic Resource
Cambridge, Mass.
:
Berkeley Electronic Press (now: De Gruyter)
Studies in nonlinear dynamics and econometrics
2.1998, 4, art3
ISSN:
1081-1826
Source:
Berkeley Electronic Press Academic Journals
Topics:
Mathematics
,
Economics
Notes:
In this paper, we examine the characteristics of market opening news and its impact on the estimated coefficients of the conditional volatility models of the GARCH class. We find that the differences between the opening price of one day and the closing price of the day before have different characteristics when considering various stock-market indices on which options are actively traded. The impact of a suitable positive-valued transformation of these differences has the effects of modifying the direct impact of daily innovations on volatility and reducing the estimated overall persistence of such innovations. The overall contribution of the variable is evaluated in an out-of-sample forecasting exercise, where we obtain significant improvements above the simple GARCH model.
Type of Medium:
Electronic Resource
URL:
http://www.bepress.com/snde/vol2/iss4/art3
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