Realized Stock Volatility

Abstract

Using intradaily high-frequency returns on the Dow Jones Industrial Average portfolio over the January 1993 to May 1998 period, we document the properties of interdaily `realized' volatility and fit a fractionally integrated model that accounts for the leverage e#ect directly to logarithmic realized variances. On the basis of ex ante one-day-ahead prediction criteria we find that this model yields unbiased and accurate variance, standard deviation and logarithmic variance predictions and that these predictions clearly improve upon the ones obtained by a GARCH, FIGARCH, EGARCH and FIEGARCH model. JEL Classification: C22, C53, G14 Keywords: Volatility; High-Frequency Data; Long-Memory; ARCH Models; Prediction # I am grateful to the Johns Hopkins Milton S. Eisenhower Library for acquiring the used intraday data. For helpful comments I thank Pedro de Lima, Goncalo Fonseca, Louis Maccini and Robert Mo#tt. 1. Introduction Daily return volatility is indispensable to finance. Asset...

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