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An Analysis of the Financial Market Volatility via Nonlinear Time Series Models

Research Project

Project/Area Number 18530231
Research Category

Grant-in-Aid for Scientific Research (C)

Allocation TypeSingle-year Grants
Section一般
Research Field Public finance/Monetary economics
Research InstitutionThe University of Tokyo

Principal Investigator

ISHIDA Isao  The University of Tokyo, Graduate School of Economics, Assistant Professor (20361579)

Project Period (FY) 2006 – 2007
Project Status Completed (Fiscal Year 2007)
Budget Amount *help
¥3,670,000 (Direct Cost: ¥3,400,000、Indirect Cost: ¥270,000)
Fiscal Year 2007: ¥1,170,000 (Direct Cost: ¥900,000、Indirect Cost: ¥270,000)
Fiscal Year 2006: ¥2,500,000 (Direct Cost: ¥2,500,000)
KeywordsEmpirical finance / Financial econometrics / Volatility / Volatility of volatility / Realized volatility / ARFIMA-GARCH / Long-memory time series / Multivariate conditional density / 金融市場 / ファイナンス
Research Abstract

This research project empirically investigates the time series behavior of financial market volatility Based on the weak convergence theory that approximately links discrete-time and continuous-time stochastic processes, various extensions of the standard GARCH(1,1) model, including nonlinear models with flexible conditional variance functions of a neural network type, are newly developed and applied to daily data of major stock market indices including both developed markets and emerging markets. The obtained empirical results indicate that the elasticity of volatility of volatility with respect to the current level of volatility is much higher than previously believed for most indices, implying that financial market volatility increases very rapidly in response to shocks. This finding has important implications for risk management, derivatives pricing and hedging, and monetary policy. In the second part of the project, the ARFIMA-GARCH model is applied to the so-called daily realized volatility (RV) constructed as a daily sum of squared five-minute high-frequency returns on the Nikkei 225 stock market index. Consistent with the extant literature, it is found that the Nikkei 225 RV is highly predictable with a long-memory property, meaning that its autocorrelations decay very slowly. The GARCH component of the ARFIMA GARCH model reveals that the volatility of volatility, more specifically the conditional variance of the Nikkei 225 RV, is stochastically changing through time with a component that is to some extent predictable. The continuous sample path variation component of the RV, which is free of the contributions of large jumps in the index value, is also studied. The results are similar to those for the standard RV.

Report

(3 results)
  • 2007 Annual Research Report   Final Research Report Summary
  • 2006 Annual Research Report
  • Research Products

    (7 results)

All 2007 2006

All Presentation (7 results)

  • [Presentation] Heteroskedasticity in the Nikkei 225 Log Realized Volatility2007

    • Author(s)
      石田 功
    • Organizer
      2007年度統計関連学会連合大会
    • Place of Presentation
      神戸大学
    • Year and Date
      2007-09-07
    • Description
      「研究成果報告書概要(和文)」より
    • Related Report
      2007 Final Research Report Summary
  • [Presentation] Heteroskedasticity in the Nikkei 225 Log Realized Volatility2007

    • Author(s)
      Isao Ishida
    • Organizer
      The 2007 Japanese Joint Statistical Meeting
    • Place of Presentation
      Kobe University
    • Year and Date
      2007-09-07
    • Description
      「研究成果報告書概要(欧文)」より
    • Related Report
      2007 Final Research Report Summary
  • [Presentation] Heteroskedasticity in the Nikkei 225 log realized volatility2007

    • Author(s)
      石田 功
    • Organizer
      2007年度統計関連学会連合大会
    • Place of Presentation
      神戸大学
    • Year and Date
      2007-09-07
    • Related Report
      2007 Annual Research Report
  • [Presentation] Scanning Multivariate Conditional Densities with Probability Integral Transforms, with Application to Volatility Modeling2006

    • Author(s)
      石田 功
    • Organizer
      日本統計学会 75th Anniversary Symposium: Recent Advances in Applied Econometrics
    • Place of Presentation
      東京大学
    • Year and Date
      2006-09-23
    • Description
      「研究成果報告書概要(和文)」より
    • Related Report
      2007 Final Research Report Summary
  • [Presentation] Scanning Multivariate Conditional Densities with Probability Integral Transforms, with Application to Volatility Modeling2006

    • Author(s)
      Isao Ishida
    • Organizer
      The Japanese Statistical Society 75th Anniversary Symposium : Recent Advances in Applied Econometrics
    • Place of Presentation
      University of Tokyo
    • Year and Date
      2006-09-23
    • Description
      「研究成果報告書概要(欧文)」より
    • Related Report
      2007 Final Research Report Summary
  • [Presentation] Scanning Multivariate Conditional Densities with Probability Integral Transforms, with Application to Volatility Modeling2006

    • Author(s)
      石田 功
    • Organizer
      The 16th New Zealand Econometric Study Group
    • Place of Presentation
      Univ. of Otago, Dunedin, New Zealand
    • Year and Date
      2006-08-04
    • Description
      「研究成果報告書概要(和文)」より
    • Related Report
      2007 Final Research Report Summary
  • [Presentation] Scanning Multivariate Conditional Densities with Probability Integral Transforms, with Application to Volatility Modeling2006

    • Author(s)
      Isao Ishida
    • Organizer
      The 16th New Zealand Econometric Study Group Meeting
    • Place of Presentation
      University of Otago, Dunedin, New Zealand
    • Year and Date
      2006-08-04
    • Description
      「研究成果報告書概要(欧文)」より
    • Related Report
      2007 Final Research Report Summary

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Published: 2006-04-01   Modified: 2016-04-21  

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